Surety bonds offer insurance protection for liabilities such as debt, default, or failure to fulfill a contract. These ensure that a service is rendered according to an agreement. If a side has committed a wrong, the part they have wronged will receive full compensation for the service cost. The arrangement follows coordination among three parties; a principal, an oblige, and a surety.
The Three Types of Surety Bonds
How do surety bonds work? The principal is the provider who agreed to provide a specific service. The obligee is the recipient of the service who paid the principal. Finally, the surety is the party offering compensation if the principal cannot provide the services promised to the obligee. There is plenty to know about the three types of surety bonds.
Commercial Surety Bonds
A commercial surety bond is protection intended to regulate a market and prevent professionals from engaging in damaging business practices such as fraud. License and permit bonds are one of the most identified forms of commercial surety bonds. Likewise, state governments often require them before anyone can issue a permit or license. It protects the public from unscrupulous professionals, and this type of bond can shield the government from losing money. Other examples of commercial surety bonds include sales tax bonds, business service bonds, and auto dealer bonds.
Contract Surety Bonds
Contract surety bonds are insurance protection that extends to the terms established in a contract. If a party does not meet the terms of the agreement, then one side can invoke a contract surety bond to compensate the party who has suffered a loss. This type of surety bond is commonplace in the field of construction, and it’s also federally required for construction projects that exceed $100,000 in value. The Miller Act specifies the requirement, but many states have their own similar statutes that may set a limit as low as $5,000. Construction professionals should check the laws in their area to obtain the correct contract surety bond.
Court Surety Bonds
Some legal disputes necessitate a court surety bond. Professionals use this type of bond to minimize potential monetary loss for somebody involved in a court case. The bond can also ensure that an individual completes a task that has been court mandated. This type of court surety bond is called a judicial bond, and it will cover the loss that could stem from a court’s ruling. Fiduciary or probate bonds are another type of court surety bond. These are typically used to ensure that an individual who manages another person’s financial assets is doing so competently.
About BTC Insurance Services
Founded in 2011, BTC Insurance Services has proudly served Utah businesses with comprehensive and custom-tailored insurance coverages for a decade. We pride ourselves on fostering long-term client relationships with a personalized and hands-on approach, and have established a reputation built on quality and transparency. For more information about our products and services, we invite you to contact one of our reputable agents today at (855) 944-3457, or send us a message here.
