Why Surety Bonds Are Critical for Businesses
Posted on: January 19, 2018 by Signature Insurance Group
The surety industry may only represent a fraction of the total property/casualty marketplace, but surety bonds are a critical element for businesses. Surety bonds help businesses safeguard their projects and make certain that contractors and vendors will perform the agreed upon work and abide by the terms of the project.
What is a Surety Bond?
A surety bond is a three-party agreement in which the surety company assures the obligee that the principal will fulfill their contract. In short, a surety bond is like an insurance policy for the party that secures the bond—known as the obligee.
Typically, the obligee is a business or government agency and the bond is in place to protect the government and its citizens in the event that the principal party (contractor or vendor) does not perform their duties as agreed upon.
Types of Surety Bonds
There are a multitude of surety bonds that a business can seek out and benefit from, including:
Commercial Surety Bonds – a very general and basic surety bond that ensures that the principal party meets and fulfills the requirements for a variety of tasks and operations.
Subdivision Bonds – ensures that developers will properly develop a property based on contractual agreements.
License and Permit Bonds – a guarantee that the individuals or businesses with licenses and permits will operate within the boundaries of their license and permits.
Performance Bonds – ensures that contractors will meet the performance requirements for a project.
Bid bonds – protects the bidding process and guarantees to the project owner that the bidder will be able to perform the job as expected.
Payment bonds – guarantees that subcontractors and suppliers on a project will be paid according to the agreed upon contract.
Ancillary bonds – works in conjunction with performance bonds to ensure that any and all other contract requirements are met, beyond performance and payment requirements.
Benefits of Surety Bonds
In order to secure a surety bond, the principal party must meet the surety company’s rigorous qualifications. Before issuing a bond, a surety company will ensure that a contractor has – among other things—excellent references and a good reputation, is able to meet current and future obligations, has the necessary experience to match project requirements, has the necessary equipment to match project requirements, and has the financial capacity to perform the work and/or pay others to perform it.
For the obligee, a surety bond takes nearly all of the guesswork out of obtaining a contract with a contractor and gives peace of mind that the project will be either be completed to their satisfaction or they will be compensated accordingly.
About Signature Insurance Group
Signature Insurance Group has been working since 1969 to provide comprehensive insurance solutions to individuals and businesses across the United States. We offer a range of insurance products and services in risk management, employee benefits, business insurance, and personal insurance, and we pride ourselves on our commitment to creating “Signature Relationships” with our clients where we commit to providing the best, most comprehensive service possible. To learn more about our goods and services, contact us today at (800) 464-3606.