Define: Surety

A surety is a person or entity that agrees to be responsible for the debt or obligation of another person, known as the principal, in the event that the principal fails to fulfill their obligations.

A surety bond is a contract between three parties: the principal, the surety, and the obligee. It guarantees that the principal will fulfill their obligations to the obligee, and if they fail to do so, the surety will compensate the obligee for any losses incurred.

While both surety bonds and insurance provide financial protection, they differ in terms of the parties involved and the purpose. Surety bonds involve three parties, whereas insurance involves two parties. Surety bonds are designed to ensure the performance of a specific obligation, while insurance provides coverage for a range of potential risks.

There are various types of surety bonds, including contract bonds, license and permit bonds, court bonds, and fidelity bonds. Contract bonds are commonly used in construction projects, license and permit bonds are required for certain professions, court bonds are used in legal proceedings, and fidelity bonds protect against employee dishonesty.

To obtain a surety bond, you typically need to contact a surety bond company or an insurance agent who specializes in surety bonds. They will assess your eligibility and provide you with a quote based on factors such as your creditworthiness and the type of bond required.

If the principal fails to fulfill their obligations, the obligee can make a claim against the surety bond. The surety will then investigate the claim and, if valid, compensate the obligee up to the bond’s limit. The surety will then seek reimbursement from the principal for the amount paid.

Yes, a surety bond can be canceled. The specific cancellation terms will be outlined in the bond agreement. Generally, the surety must provide a notice of cancellation to the principal and the obligee within a specified timeframe.

While having bad credit may make it more challenging to obtain a surety bond, it is not impossible. Some surety bond companies offer options for individuals with less-than-perfect credit, although the terms and conditions may be stricter.

The cost of a surety bond varies depending on factors such as the type of bond, the bond amount, and the applicant’s creditworthiness. Typically, the premium for a surety bond is a percentage of the bond amount, ranging from 1% to 15%.

Certain surety bonds, such as license and permit bonds, are required by law for specific professions or industries. However, not all obligations require a surety bond. It is essential to check the relevant laws and regulations to determine if a surety bond is necessary in your situation.