Surety Bond Basics
What is a surety bond?
A surety bond is a three-party agreement that provides a financial guarantee for your contractual or legal obligations. Surety bonds protect the public by providing a financial guarantee from a regulated insurance company that you will fulfill your obligations as a licensed professional according to laws or executed contracts. There are three parties involved in a surety bond:
- The principal: You (the person purchasing the bond who is responsible for repaying any losses to the insurance company)
- The obligee: The entity requiring the bond, such as a government agency or construction project owner
- The surety: Insurance company backing your guarantee
Why do I need a surety bond?
You may need a surety bond for various reasons, such as:
- Obtaining a professional or business license
- Complying with state, federal, or local regulations
- Bidding on or completing a construction project
- Fulfilling court-appointed duties
- Meeting contractual requirements
Surety bonds protect consumers, businesses, and government entities by guaranteeing financial recourse if you fail to meet your obligations.
How does a surety bond work?
When you purchase a surety bond, you guarantee you'll perform according to specific requirements. If a valid claim is made against your bond, the surety company will pay the claimant up to the bond amount. However, unlike insurance, you are required to reimburse the surety for any claims paid plus associated costs and legal fees.
Is a surety bond the same as insurance?
No. A surety bond is a three-party agreement that protects the public and not yourself. If a valid claim is made against your bond, the surety company will pay the harmed party and seek reimbursement of any claims paid from you. With insurance, you’re protected from having to reimburse the insurance company for any claims paid.
Related:
Pricing & Payment Policies
Surety Bond Application Process
Surety Bond Claim Process
Working With NNA Surety