Surety Bond Coverage Is A Traditional Part Of Business PDF Print E-mail
Written by Caressa Waechter   
Friday, 14 May 2010 14:59
Surety bond coverage is a necessary part of the business world. The surety bond system is simple to comprehend. It involves three people at a minimum and is part of a contract agreement. The issuer of the bond insures that the party responsible for performance of a contract will keep his part of the agreement.
by CaressaWaechter


Surety bond coverage is a necessary part of the business world. The surety bond system is simple to comprehend. It involves three people at a minimum and is part of a contract agreement. The issuer of the bond insures that the party responsible for performance of a contract will keep his part of the agreement.

The party to perform the contract is referred to as the principal. The party who is to receive the contract performance in referred to as the obligee, which is a legal term. The surety bond issuer is the party that insures the principal's performance of the contract.

The reason this is a part of business is that contracts would be less likely to be agreed upon if the obligee had no insurance against the non performance on the part of the principal.

Deals would be in less supply if obligees did not have quick money to remedy the non performance of the contract. They simply would not be able to handle the risk of non performance. The surety will pay the obligee an agreed amount if the contract is breached by the principal.

The surety bond person will come in and promise to pay the obligee for the non performance of the principal. This is an amount determined before hand. It would not make sense for the surety to pay an unlimited amount of money in case of non performance.

The surety will collect insurance premiums from the principal and in some cases the principal will be held liable by the surety for his failure to perform on the contract.

Surety bonds are used in many cases of construction contracts. The contractor is the principal. The person or group he is building for is the obligee. Usually the surety is an insurance company. If the contractor does not or is not able to complete the work according to the expectations of the obligee then the surety will pay the obligee a specified amount based on what the obligee will have to spend to remedy the situation and also based upon a specified amount when the surety bond coverage was established. This is the way business can move forward. It is a very important part of the contract business.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Certain companies may need two different bond types. With a surity bond they can have written contracts guaranteed, while with fidelity bonds they can have coverage against dishonest or fraudulent employees.