A surety bond is an insurance policy that guarantees that an individual or business will fulfill all of their obligations to a client. It is essentially a contract between three parties: a principal, an obligee, and a surety. The principal is the individual or business that is providing a service and is the party required to purchase the surety bond, while the obligee is the client the bond is supposed to protect. Should the principal fail to fulfill their obligations, the surety can reimburse the obligee for any funds that were lost.
A Mississippi surety bond is required for professionals and businesses in industries such as construction and automobile sales, especially for contractors who are working on a project for the federal or state government. Surety bond requirements vary from state to state, and even companies that sell Mississippi surety bonds have their own requirements when it comes to selling a policy. No matter what kind of policy you need, we will work closely with you to make sure that you have the surety bond that you need.
How Does a Surety Bond Work?
There are several different types of Mississippi surety bonds available, but even though each one has its own purpose and requirements, most of them work in roughly the same way. A bond is a type of insurance that works to protect a client who hires a service provider (an obligee) even though it is the service provider (called a principal) who needs to purchase the bond.
If the principal fails to fulfill their obligations to an obligee, the obligee can file a claim against the surety bond. Should the claim prove to be valid, the surety - the insurance company who sold the bond to the principal in the first place - will reimburse the obligee for any funds that were paid according to the terms of the bond. It is then up to the principal to reimburse the surety for anything that was paid to the obligee.
Who Is Required to Purchase Sureties?
Most individuals and businesses that require sureties work in the construction industry, although bonds are needed in other industries as well. Most sureties are written for contractors hired for government projects and municipal construction or renovation. They are also usually required for any projects that will cost over $100,000. Commercial bonds are often required for those in automobile sales and real estate for licensing purposes. This is especially true for the state of Mississippi, where surety bonds are almost always required for those seeking a license to operate within these industries.
What Are the Different Types of Surety Bonds in Mississippi?
There are several different types of bonds, each of which are required in different industries. Most of them can be categorized as either contract bonds or commercial bonds. We can work closely with you to determine which of these bonds you will need for your business.
As their name suggests, contract sureties are required of contractors for government construction projects or any project that will cost over $100,000. These bonds can themselves be put into one of three categories.
- Bid bonds - provide protection to obligees in the event that a successful bidder backs out of a construction project after they've already committed to it. In these cases, the obligee is reimbursed for services that were promised but never rendered.
- Performance bonds - guarantee that all obligations will be met faithfully by the principal. These are different from bid bonds in that they allow an obligee to be reimbursed if a project was begun but not completed to the satisfaction of the client.
- Payment bonds - guarantee that a principal will provide payment that is due to all subcontractors, suppliers and anybody else who is involved in a construction project.
Contractor bonds are required for construction projects, but commercial sureties are often necessary for those who provide other commercial and legal services such as:
- License and permit bonds - are required of those engaging in businesses such as real estate and automobile sales. As their name suggests, they are part of the licensing process and are almost always required in the state of Mississippi.
- Court bonds - are necessary during court cases to preserve the rights of the opposing party. They can be purchased by the plaintiff or the defendant.
- Fiduciary bonds - are needed by anybody who provides court-supervised trusts.
- Public official bonds - are necessary of certain public officials. They are necessary for protecting the public from malfeasance if an official fails to perform his or her duties faithfully.
- Miscellaneous bonds - commercial bonds that don't fall into any one category.
How Do Sureties Benefit Principals?
It might seem to some people that surety bonds only benefit obligees. After all, they are the ones that the policies are supposed to protect. They do have benefits for the principals who purchase them, however. First of all, buying a surety bond provides principals with credit, which can come in handy for new companies as they're just starting out. They are also necessary for many companies to be licensed in the state of Mississippi. Finally, bonding can be a great way to put clients at ease as they do business with you. They represent a guarantee that you will fulfill your obligations and make sure that your clients are satisfied.
If you have any additional questions about Mississippi surety bonds or you want to find the right bond for your business, contact us today.