The Surety Bond is a legal contract between the principal, the obligee and the surety. The principal or the business owner needs to buy the bond and the surety or the insurance company provides the bond in form of financial guarantee to the obligee who is the client. The principal has obligations to follow the rules and regulations laid down by the State. If the client faces any harm due to the misconduct of the principal, he or she can file a claim on the bond. The surety is required to resolve the dispute of principal failing to complete the obligation to the obligee, by paying a claim.
Types of surety bonds
There are several types of surety bonds secured for different purpose but can be categorized under four heads. They are:
- Contract surety bonds: This kind of Surety Bond provides the guarantee that the contractor performs all the duties that have been mentioned in the contract. The bonds are required by general contractors with one or more projects, large construction companies, trade contractors, individual contractors and subcontractors with federal government. There are four different types of contract bonds: bid bond, payment bond, performance bond and maintenance bond.
- Court Surety bonds: The companies or individuals can be protected from losses during court cases using this bond. The bond can be divided into two brad category of defendant bond and plaintiff bond. Some types are administrator bond, cost bond, attachment bond and guardianship bond.
- Commercial Surety bonds: The Commercial bonds are general category where licensed businesses are required to have them to ensure they follow all regulations for the safety of the public. Licensed contractors, liquor stores, lottery sellers, notaries, auto-dealers and other licensed professionals must have these bonds. License and permit bond, mortgage broker bond and many others fall under this category.
- Fidelity Surety bonds: A company buys this bond to protect itself from any dishonesty or theft by any employee. Businesses that deal with money require them. Business Service bond, ERISA bond and Employee Dishonesty bond are types of Fidelity bond.