What Are Surety Bonds, and Do You Need Them?

We often see the phrase “bonded and insured”, but what exactly does it mean? This refers to the process of bonding through surety bonds. Although they are a form of commercial insurance at their core, surety bonds work slightly differently: Generally speaking, they play a different role and fulfil a different objective than other insurance policies by financially guaranteeing that a contract will be fulfilled as originally agreed to by the parties to the contract.

Person(s) bonded will:

• remain compliant with a law, regulation, or contract;
• be honest and forthright;
• act with integrity;
• be financially responsible.

Here are three important bond categories:

Commercial surety bonds: Permit, notary, public official, and license bonds are required by law for certain types of companies.

Fidelity bonds: If you own a business, this helps protect you and your clients/customers from employee theft or any act deemed dishonest that results in a financial loss. For example, if a contractor’s employee steals some of a customer’s belongings while on the job, a fidelity bond would cover his and his customer’s losses.

Contract surety bonds: If you’re a contractor, you may need one or more contract surety bonds (which include performance bonds, bid bonds, payment bonds and maintenance bonds). These bond types guarantee that the contractor will honor contract terms, such as what supplies he or she provides, the price for the job, and the work to be performed.