Surety bonds are sometimes mistakenly thought of as insurance, and although there are some similarities between the two, the intent is entirely different between these two concepts. Insurance is meant to protect an individual or a business from unforeseen events or setbacks, and if either of those should actually occur, some monetary compensation could be anticipated from the insurer. When you purchase a surety bond as a businessman or contractor, the protection does not cover you or your business, but instead protects a consumer or customer who is retaining your services. In effect, it protects them against any subpar performance or non-compliance on your part.
How a surety bond works
There are three parties involved in a surety bond: the principal, the obligee, and the surety company. The principal is the contractor or businessman purchasing the surety bond, and the obligee is a company or agency which requires the principal to buy that bond. The surety is the company which sells the bond to a principal, and which would have to pay the upfront compensation to an obligee if any claim were to be made against the bond.
As an example, let’s say a municipal government agency requires all contractors working on a city project to be bonded as a condition of being hired for the work. Each contractor would have to buy a construction surety bond from a surety company as a protection for the city that all local regulations would be complied with, and that the specified tasks would be completed satisfactorily. If any of these conditions are not met by an individual contractor, the city would have the option of making a claim against the bond to cover any damages incurred, or to have the job re-worked.
The surety company would be obliged to pay the amount of the claim, up to the face value of the bond, and would subsequently seek to recover that entire sum from the principal who failed to live up to terms of the bond. The potential for having to pay a huge amount of money as a penalty serves as a strong motivation for compliance and good performance. A principal’s business reputation would also suffer significant harm by defaulting on the terms of a bond.
How to get bonded
The requirements for purchasing surety bonds differ from state to state, and there are literally hundreds of different types of bonds which can be purchased. Most states requires license and permit bonds for certain professions, as a guarantee for the public that competent work will be provided by contractors and other professional people.
To get properly bonded in your state, contact NFP Surety, which is a nationwide provider, and one of the largest and best sellers of surety bonds in the country. You’ll find the process quick, affordable, and a very pleasant experience which fulfills any kind of professional bonding needs you may have.
NFP Surety bond experts offer affordable bonding in all 50 States. Experienced insurance agents want to help provide you with the surety bond you need, on the correct bond form. We appreciate your business and wish to become your go-to agency for all of your surety bond needs, good or bad credit. Check for your State below for more information about the surety bond you need and how to apply for a bond. Let us do the shopping for you. Apply for any type of bond in any state, and we’ll get you bonded as soon as possible.
We look forward to hearing from you. Call us at (800) 863-3210.