Suretyship is a very specialized type of insurance that is created whenever one party wishes to guarantee the performance of another party. Although many insurance agencies provide bonds to their clients, the process of obtaining a bond is actually much more similar to securing a loan than purchasing an insurance policy.
These similarities are evidenced by what is normally reviewed by a surety/insurance company before they will approve a bond:
- Financial Strength/Stability
- Company History
- Continuation Plans
- Credit History
- Ability to Perform Tasks
The emphasis that’s placed on particular areas will change depending upon the type of bond and the line of work, but you can be assured an underwriter will always look first to the financial health/track record of the company/individual seeking a bond.
Here’s a brief summary of the various types of bonds most common today:
Contract Surety Bond
The contract bond provides financial security and construction assurance for building and construction projects by assuring the project owner (obligee) that the contractor (principal) will perform the work and compensate certain subcontractors, laborers and material suppliers, as outlined via their contract.
Contract surety bonds include:
- Bid bonds provide financial assurance that the bid has been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds.
- Performance bonds protect the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
- Payment bonds guarantee that the contractor will pay certain subcontractors, laborers and material suppliers associated with the project.
- Maintenance bonds guarantee against defective workmanship or materials for a specified period.
- Subdivision bonds make guarantees to cities, counties or states that the principal will finance and construct certain improvements such as streets, sidewalks, curbs, gutters, sewers and drainage systems.
Commercial Surety Bond
Commercial surety bonds guarantee performance by the principal of the obligation or undertaking described in the bond.
Commercial surety bonds include:
- License and permit bonds are required by state law or local regulations in order to obtain a license or permit to engage in a particular business (contractors, motor vehicle dealers, securities dealers, employment agencies, health spas, grain warehouses, liquor and sales tax).
- Public official bonds guarantee the performance of duty by a public official, (treasurers, tax collectors, sheriffs, judges, court clerks and notaries).
- Judicial bonds, also referred to as fiduciary bonds, secure the performance on a fiduciaries’ duties and compliance with court orders (administrators, executors, guardians, trustees of a will, liquidators, receivers and masters).
- Federal bonds are required by the federal government (Medicare and Medicaid providers, customs, immigrants, excise and alcoholic beverage).
- Miscellaneous bonds include lost securities, lease, guarantee payment of utility bills, guarantee employer
The Accel Group has the ability and expertise to handle your bonding needs. We’re able to guide you through the process, so you are able to focus on managing and growing your business.
To learn more about how The Accel Group can assist with your bonding needs, please contact our office and ask to speak with one of our surety advisors.