You’re looking for information on surety bonds but you spelled it “Surity”.
This makes perfect sense. From the earliest ages we are taught phonics. We learn to sound out the words that we hear and to pronounce the words that we read. How does this relate to surety bonds? Many people initally think that surety is spelled “surity." This simply means that they are using their early training to learn more about an unfamiliar term that they have heard something about.
If you are among those new to the concept, consider this your introduction to all things surity!
Surety Bonds Are Old
Surety bonds are old. Ancient really. The earliest known record of a contract suretyship is a Mesopotamian tablet written around 2750 BC. Who knows, perhaps the original spelling was “Surity.” Over time they came in as a guarantee to protect people entering into agreements. The term “surety” even shows up 6 times in the Bible often denoting something similar to modern day surety bonds or co-signing for a loan.
Surety Bonds are a Three-Party Agreement
- Principle – The Principal is the person who is required to have the bond.
- The Obligee – The Party who is requiring the bond.
- The Surety – This is the Surety Carrier who the principle pays their bond premium to (like an Insurance Company) and who the oblige can file a claim with should the Principal fail to follow through on contractual obligations
What Happens When a Claim Occurs?
When claims occur, the surety goes after the principal for the FULL amount they are required to payout on the bond. For this reason, some have described surety bonds as a guarantee that allows you to borrow from the balance sheet of a surety. Claims are bad news for principals and can seriously undermine an individuals able to remain in business. Those with bond claims are harder to bond in the future or are required to pay a much higher surety bond premium in the future. For this reason, principals should avoid bond claims when at all possible.
Surety Bonds are Diverse
There are over 25,000 different varieties of Surety Bond in the US. Surety bonds range from the “Licensed & Bonded Contractor” in your hometown to taxi-cab drivers in New York City, from court bonds to side-walk restoration bonds. Surety bonds are quite varied but generally function in much the same way.
Some common examples of surety bonds:
- License & Permit Bonds
- Motor Vehicle Dealer Bonds
- Court Bonds
- Performance Bonds
- Fidelity Bonds
- And many more!
Who Gets to Decide That a Surety Bond is Required?
State and Local Municipalities write surety bonds into law through proposed legislation. Why? Generally, surety bonds arise when residents of a particular State or Local Municipality are suffering some reoccurring financial loss through business contracts. For example, let’s imagine you hired a “licensed and bonded” contractor to remodel your house, he ripped out drywall and then got thrown in jail. Now what? The homeowner has suffered a financial loss and is simply out. That is unless the contractor was “Bonded” with a Surety Bond. When a surety bond is in place, the home owner is able to file a bond claim with the surety company to have the basement repair. This “indemnifies” the homeowner even as the surety goes after the principal for the full amount of the claim.
Surety Bonds are Not Insurance
Surety bonds are not insurance, but they are sold by insurance agents. Is that confusing enough? If you are a principal (“the person needing a bond”) then the bond covers the person you are doing business with, not you. Insurance is coverage for you. That is the most fundamental difference. That being said, many insurance companies write both insurance and surety bond policies.
Do You Need a Surety Bond?
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