what is a surety bond
Channel: Worldwide Insurance
Date: 28/08/2023

A surety bond is a legal contract that ensures an agreement is carried out properly. When a surety company sells a surety bond, they are promising to one party that the other party (usually a small contractor) will fulfill their contract terms. If the contract is not executed fully or properly, then the surety bond company steps in to resolve the situation — typically with a refund up to a predetermined amount.

As mentioned, a surety bond involves three parties:

●     Principal: The party that needs the bond (you)

●     Obligee: The party that requires the bond (typically the client or government).

●     Surety: The company that issues the surety bond and ensures that the principal fulfills the contract.

What is an example of a surety bond?
A business owner (obligee) is expanding and hires a construction contractor (principal) to build a new office. Before beginning work, the business owner requires the contractor to obtain a surety bond for $100,000. The contractor obtains a surety bond from Construction Bonds, Inc. (surety).