Surety bonds offer great benefits to individuals, contractors and businesses. However, many people simply have little or no idea about these bonds as important and helpful as they could prove to be. If by any chance you are one of such people, here is a consumer’s guide to surety bonds.
What are surety bonds?
A surety bond is a financial instrument which helps to safeguard against risks and losses. Although some may think of these bonds as insurance tools, they are not necessarily so. The bonds present a good way of ensuring people do the jobs expected of them. Three parties are usually involved in a surety bond agreement: the principal (buyer of the bond), the obligee (bond buyer’s client) and the surety (the party underwriting the bond). If the principal fails to deliver what is stipulated in a legal agreement with the obligee, the surety will be forced to assume responsibility.
Popular types of surety bonds
There are numerous types of surety bonds that can be bought, depending on the peculiarity of individual cases. However, the following are the most popular ones.
Contract bonds – These are the types of bonds that help to guarantee contracts are executed as agreed. They are most commonly used in the construction industry. Contract bonds are necessary because some contractors often fail to deliver the project expected of them at a significant cost to their clients. Bid bonds and performance bonds are two of the varieties of this bond.
Commercial bonds – These are the types of surety bonds used to ensure that working professional carry out their activities in line with set standards. Commercial bonds help to discourage involvement of businesses in fraud. There are also several varieties of these.
Court bonds – These are the type of bonds used to safeguard individuals, corporate bodies and other parties involved in lawsuits to ensure things are done the best way. They are also made available in different types.
Costs of surety bonds
The costs of surety bonds are not fixed. Several factors are considered before a cost can be determined. Bond type, its amount and terms as well as the applicant’s reputation, credit scores and work history are some of factors that are considered in coming up with a cost. For example, applicants with credit scores of at least 700 might get $10,000 worth of coverage for a payment between $100 and $400. Those with lower credit scores should expect to pay more.