In its simplest form a surety bond is a contract among at least three parties. The first is designated the “OBLIGEE”, which is generally the party requesting you to get a bond for work you are about to perform or to guarantee that you will perform some obligation. The second is designated the “PRINCIPAL”, this is going to be you the party who will be performing the contractual obligation. Finally there is the “SURETY”, this is the company that will assure the OBLIGEE that you you will meet your contractual obligations.
The simplest way to explain a Surety Bond is that if you do not preform what you contracted to perform the SURETY will perform the contract.
The PRINCIPAL (you)will pay a premium (usually annually) in exchange for the bond. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the PRINCIPAL for reimbursement of the amount paid on the claim and any legal fees incurred.
What are the different types of Surety Bonds?
There are many different types of Surety Bonds. The most common are Bid, Performance and Payment, License and Permit and Lost Instrument Bonds.
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