Business Bonds Info & Quote

What is a Surety Bond?

A surety bond is a contract between three parties – the principal (your customer), the surety company, and the obligee (the entity requiring the bond, typically a state or local government). Surety bonds guarantee that the Principal will act in accordance with the terms established by the bond, which are usually a set of statutes or ordinances required for business licensing or performance of contract terms.

Unlike most insurance products, the principal is required to indemnify the surety company against all losses. In other words, the surety company will pay the obligee up to the bond amount for valid claims; however, the principal must reimburse the surety company for all losses, typically including attorney fees and other claims handling expenses.

What is the Purpose of a Surety Bond?

Surety bonds protect the obligee from financial harm in the event that the principal violates the bond provisions. So yes, surety bonds are insurance, but for the obligee rather than the principal. For example, if an auto dealer sold a consumer a vehicle after altering its odometer, then the consumer could file a claim against the dealer’s bond to recover any losses. Since the dealer violated the bond’s provisions, which in this case prohibits any acts of fraud, the consumer can receive compensation through the dealer’s bond.

How Much Does a Surety Bond Cost?

Most surety bonds can cost anywhere between 0.75% to 5% of the bond amount per year. Surety companies determine the rate based on a number of factors including your customer’s credit score and experience