Q. What is a Surety Bond?
A. A Surety Bond is a credit relationship between three parties, the Principal, the Obligee and surety, wherein the surety guarantees the principals performance and payment under the terms specific to either a contract or state statute to the oblige.
Q. Who are the parties to a surety bond?
A. A Surety Bond is a three party agreement
- Principal (our client)
- Surety (insurance company)
- Obligee (federal state or local governmental body monitoring the license or contract)
Q. Is a Surety Bond the same as an Insurance Policy?
A. A surety bond is not an insurance policy. You cannot “buy” a surety bond; instead you must “qualify for a bond.”
Q. What does a surety bond do?
A. A surety bond is a protective measure for the Obligee. It provides the Obligee an avenue to get a project completed in the case of default by the principal.
Q. What doesn’t a surety bond do?
A. A surety bond is not an insurance policy. It is not a substitute for inadequate insurance coverage, either liability or property damage. A bond will not be liable for personal injuries or for property damage that results from a Principal’s negligence. A bond is in no way constructed as a financial resource for the Principal.
Q. Who truly benefits from a surety bond?
A. Surety bonds provide payment to the Obligee or in some instances to third parties for losses or damages resulting from violation by the principal (our client) due to a breach of the duties and obligations imposed upon him or her, therefore the oblige or the public benefit from the surety bond.
Q. How do surety companies “underwrite an application”?
A. Underwriting is performed by the surety company in order to qualify the principal for surety credit (a bond). Some prequalification checks performed by sureties:
- Financial Stability
- Creditworthiness
- History or Experience to perform a specific job
- Structure of Business
- Proper Licensure
Q. Why do I have to sign an indemnity agreement?
A. Indemnity Agreements are used to cover losses not premium payments. Indemnity Agreements are typically part of the application but may be obtained as a separate agreement known as a General Indemnity Agreement (GIA).