Understanding What Surety Bonds Are

If you have a contracting company, you need to have liability insurance, but did you know that you may also need a surety bond? Here is what you need to know about surety bonds.

Who is Involved in a Surety Bond?

There are three parties involved with a surety bond. The principal has to make good on the obligation, the obligee who requires the guarantee and the surety which issues the surety bond.

The surety pays a set amount of money to the obligee if the principal does not make good on his or her obligation. It can also help the principal because it helps reassure customers that their product or service will be received. Those who need surety bonds tend to be contractors. Many of these contractors may seek to work under government contracts. Companies licensed by governmental entities may also need surety bonds.

Why Do You Need a Surety Bond?

In many cases, a surety bond is a condition to obtain a legal license to conduct business. If a contractor violates a licensing law or if someone suffers damages because of your contracting company, you could be liable. The surety bond can help compensate anyone who suffers those damages.

A surety bond is considered a type of insurance policy. Insurance policies sell it and the products are specialized for the specific industry or client. In some cases, you may be required to hold liability insurance and surety bond insurance coverage.

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