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Surety Bonds Learning Center

What is a Surety Bond?

A surety bond is a written agreement to guarantee compliance, payment, or performance of an act.

Surety is a unique type of insurance because it involves a 3-party agreement. The 3 parties in a surety agreement are:

  • Principal – the party that purchases the bond and undertakes an obligation to perform an act as promised.
  • Surety – the insurance company that guarantees the obligation will be performed. If the principal fails to perform the act as promised, the surety is contractually liable for losses sustained.
  • Obligee – the party who receives the benefit of the bond. For most surety bonds, the obligee is a local, state or federal government organization.

How Do Surety Bonds Work?

In a situation where the bonded customer (principal) fails to comply with bonding terms and requirements, the surety company is financially obligated to cover damages up to the bond amount (aka "bond limit" or "bond penalty"). The surety bond principal is also required to reimburse (or indemnify) the surety for losses paid to damaged parties.

The party requiring the bond is called the obligee. Each obligee has a specific bond form with a set bond limit, term (aka "duration"), and other key information related to the customer and obligation.

Surety Bonds Direct will prepare and populate your specific bond form for your convenience.

How much will my Surety Bond Cost?

The cost of a surety bond is a percentage of the bond amount. This percentage can vary widely, ranging anywhere from 0.5% to over 15% of the bond amount. Because the cost can vary so widely, it is important to rely on experienced bond experts to ensure that you get the best rate available for your specific situation.

The easiest way to quickly get an accurate cost of your bond is to take a couple minutes and complete the free, no-obligation quote request.

The key factors used by surety underwriters to determine the cost of a bond include:

  • Your credit score and history
    (including payment trends and any judgments, liens, charge-offs or bankruptcies)
  • The risk of loss to the surety company associated with the specific bond obligation.

Bonds that guarantee tax or other payment commitments typically command a higher rate than those that ensure compliance with license or permit requirements.

The helpful and knowledgeable staff at Surety Bonds Direct has years of experience delivering surety bonds at low rates to all types of customers:

We use a simplified bonding process and leverage our deep surety market expertise to negotiate the best rates with leading surety companies on your behalf. Premium financing options may also be available to spread out the cost of your bond over time.

How is surety different from insurance?

Unlike most types of insurance, a surety bond protects the interest of a third party (obligee) rather than the insured. Therefore, surety bonds are usually purchased not for one's own sake but as a requirement of a third party (e.g. a municipality, state, federal government, or construction project owner).

Furthermore, with traditional insurance, the risk is transferred to the insurance company but in surety, the risk remains with the principal. This is handled through an indemnity clause that is signed by the applicant as part of the bond application.

Another differentiating factor is that surety is more of a credit product than an insurance product. Traditional insurance risks are evaluated based on the possibility of a loss happening to the insured considering how often similar losses have occurred in the past under like conditions (e.g. the probability of a hurricane damaging a home along the Florida coastline). Whether the homeowner has a credit score of 750 or 500 is probably irrelevant to the risk of loss.

On the other hand, similar to a loan, surety risks are more about the creditworthiness and character of the bonded (insured) because damages typically arise directly from the actions of the bonded (e.g. failure to pay taxes, unethical business practices, non-compliance with codes, or misrepresentation). In this case, surety companies do believe the auto dealer with a 750 credit score presents a lower risk of loss than one with a 550 credit score. This is why surety underwriters rely heavily on credit score as the key factor in evaluating applicants for most bonds.

What is personal indemnity?

Indemnity is an agreement to provide financial reimbursement to another party in order to offset a loss or damage incurred. Surety companies require the indemnity of the owners of closely held businesses as part of the bond application. This ensures that the surety can access personal assets if required for reimbursement in the event of a loss.

Types of Surety Bonds

Surety bonds can be classified in three major categories.

Commercial bonds

Bonds required by a local municipality, state, or the federal government to guarantee compliance, financial obligations or completion of a service. These bonds are often required as part of a licensing or permitting process. Surety Bonds Direct is licensed to issue thousands of different types of commercial bonds.

Commercial bonds can be further divided into the following categories:

  • License & Permit Bonds (L&P)
  • Financial Guarantee Bonds (a special type of license and permit bond)
  • Miscellaneous Bonds

Surety Bonds Direct can quickly approve and quote these bonds for you. Request your free online bond quote now or call 1‐800‐608‐9950 to speak with a commercial surety bond expert.

Court and Probate bonds

A court bond protects the opposing party in a litigation process by guaranteeing compliance with a court order or execution of a duty (e.g. payment of a judgment). Common types of court bonds include Appeal Bonds, Replevin Bonds, and Release of Lien Bonds.

Probate bonds guarantee the duties of guardians, administrators, trustees, and executors. These bonds are required for minors, the estate of deceased persons, and incompetent persons. Probate bonds provide a guarantee to the courts and the heirs of an estate that assets are properly managed and the court probate process is administered in accordance with legal requirements.

Surety Bonds Direct can meet all your court bonding needs. Request your free online bond quote now or call 1‐800‐608‐9950 to speak with a court bond expert.

Contract bonds

Contract bonds (sometimes called construction bonds) are surety bonds required to guarantee that a contractor will abide by the specifications of a construction job or contract. The bond ensures to the project owner that the contractor will perform the work and pay specified subcontractors, laborers and material suppliers. Surety Bonds Direct is a leading provider of contract bonds nationwide. To learn more about our easy application process, please select the specific type of contract bond needed from the following:

Also see Contractor License Bonds.

Bonding a New Business

Congratulations on your new business! At Surety Bonds Direct, we are here to help because we understand what its like to start a new business (we actually went through this process ourselves...)

Anyway, the point is that we realize that as a new business, you are faced with an overwhelming number of applications, forms, legal documents and other demands on your time and pocketbook. The last thing you need is a difficult, time consuming, and expensive bonding process. That is why we have done everything we can to simplify and streamline the experience for the new business owner.

From easy online quotes, friendly bond experts at your service, a simplified bonding process, and free online resources and tips for new businesses, rest assured that the business owners at Surety Bonds Direct have not forgotten what is like and are here for you as a new business owner. Learn more about Surety Bonds Direct.