Why do I Need a Surety Bond?
Surety bonds work more like credit than insurance. ... Contract surety bonds are commonly used in the construction industry to guarantee the performance of a contract. They include bid, performance and payment, and supply type obligations. A bid bond provides a way for project owners or contractors to pre-approve a bidder.
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Surety Bond FAQ’s
Question #1
Is a bond insurance for me?
Surety bonds and insurance are miles apart. Although both require premium payment, the similarities end there. Insurance premiums are payments that help transfer a certain amount of risk and responsibility to the insurance firm. The insurer then pays a given percentage of any damages or losses incurred by the insured person. The idea behind insurance is to protect the person who buys it from suffering unduly for mishaps that, while regrettable, are usually inevitable in everyday life.
Surety bonds, on the other hand, aim first to shield the obligee–not the bond buyer. While bonds do provide principals extra time to pay off claims if needed, they mostly give principals an incentive not to have mishaps or claims in the first place. Premiums for surety bonds are more like service charges; the principal is still responsible for paying the full amount of the claim as well as the bond premium.
Question #2
How do I know if I need a bond?
With surety bonds, the obligee will determine whether a bond is required. Bond requirements vary greatly by your occupation and location.
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