Surety bonds are one of the most common contractual agreements around. A large number of professionals and businesses need them to operate legally, and just as many contractors and construction companies rely on surety bonds to back their work. Even ordinary individuals need surety bonds for one reason or another, sometimes unexpectedly. That’s why everyone should have at least a basic understanding of how surety bonds work and who they apply to – because they could apply to you one day, too. There are four basic kinds of surety bonds that we will cover in this blog. But first, let’s go over some basics that apply to all surety bonds.
A surety bond is a financial agreement between three parties:
Here’s a simple example: A contractor accepts a client’s deposit but never performs any work. The client can file a claim against the bond for the deposit amount, and they are guaranteed a settlement by the surety provided the claim holds up under investigation. Now the client has recouped their losses. The final step is for the contractor (the party who has financial liability for claims under the surety bond agreement) to repay the surety for settling the claim. You can find surety insurance providers in California or any other state with ease.
Surety bonds hold one party accountable for misconduct (illegal, unethical, or contractually prohibited behavior) that causes damages to another party or the public at large. By forcing the principal to pay for damages they cause, surety bonds create a powerful incentive to follow the rules and meet obligations. They also create a mechanism for anyone harmed by misconduct to seek and receive compensation equal to the damages caused.
Even though the financial burden and liability fall on the bondholder, surety bond requirements are good for them, too. That’s because bondholders appear more legitimate, honest, and accountable, which can only work to their advantage. No matter what kind of surety bond you’re required to get, it’s important to fulfill that requirement quickly to prevent unnecessary delays and obstacles.
This is a common misconception. Surety bonds are not a replacement for insurance coverage. In fact, people typically need both to satisfy various requirements. Even though surety bonds and insurance seem similar, there is one major difference: insurance protects the policyholder while surety bonds hold the principal accountable. Connect with a trusted surety agency for help making sense of any surety bond requirements.
There are dozens of different surety bond types, each with different requirements in all 50 states. It’s a huge number in total. But almost all those bonds can be put into one of these four categories:
Some bonds require a more extensive application process than others. That being said, getting most bonds involves a few simple steps:
The surety will use this information to quote how much the bond will cost. Pay that amount to activate bond coverage for a set period of time (often 12 months) and be prepared to keep the bond renewed when necessary.
Bond costs depend on three factors:
Most surety bonds cost a small percentage of the coverage limit. The exact amount will depend on the bond type and the bond seeker’s credit. Great credit results in lower bond costs, but those costs rise as credit standing declines.
A surety agency helps bond seekers find the bond coverage they require at competitive rates, even for people with imperfect credit. Working with a surety agency makes the bond process better from beginning to end. That’s a benefit to everyone who needs a bond, especially people who need bonds regularly or continually. Finding the right bond partner to rely on couldn’t be more important. Skip the search and contact Viking Bond Service for all types of surety bonds in all 50 states.
