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Home » A Brief Guide to Surety Bonds
October 5, 2021
Agency

A Brief Guide to Surety Bonds

Most people don’t know what a surety bond is until they actually need one. In essence, surety bonds are insurance tools that limit risk and financial loss. Their aim is to protect the general public and guarantee that individuals or businesses do their job according to state laws, industry regulations and contractual expectations. 
man using a calculator and woman writing on paper
How Surety Bonds Work 
A surety bond joins three parties together in a legal agreement. The first is the principal, or the individual or business. The second is the obligee, who needs the bond to minimize risks, limit financial loss and protect the general public. The last is the surety, or the insurance company that actually provides the bond. 

If the principal fails to fulfill the bond’s obligation, the injured party can rightfully make a claim for reparation. But unlike other types of insurance, surety bonds require principals to repay the insurance companies in full if and when claims are paid out. 

Common Types of Surety Bond 

There are literally thousands of different types of surety bonds. However, all of them fit in either one of three categories: commercial, contract and court bonds. 

For instance, if you’re a working professional that needs a bond for your business, you’ll need a commercial bond. Often, commercial bonds are required before a government agency will issue a license or permit. This safeguards the public from losses caused by neglect, and also prevents the government from losing money. 

Contract bonds are commonly used in the construction industry. They ensure a project is completed by mutually agreed upon standards and within a set amount of time. However, contract defaulting can happen. Fortunately, the bond’s financial protection can keep you from losing your investments. 

Lastly, court bonds protect businesses, communities and individuals if they were to face any criminal charges. 

The Purpose of Surety Bonds 
Depending on how they’re used, surety bonds can protect public tax dollars, private investments or consumer spending, while ensuring businesses and individuals are doing their jobs at their best performance. 

We’ll help you get the coverage you need. Call Amco Insurance at 713-771-2626 for more information on Houston surety bonds. 

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