What's a surety bond, and how does it work?
A surety bond is a legally binding contract that helps guarantee fulfillment of an underlying obligation. You'll likely need one for construction projects, professional licensing, permits, notarization, probate and a variety of other obligations. Bond requirements vary by state.
The bond contract brings together three entities who mutually agree to its terms. They include:
- The obligee, the person or company who requires the bond.
- The principal who needs to purchase the bond.
- The obligor, the surety company that sells the bond.
Surety bonds help protect consumers, businesses and government entities from fraud and misconduct by financially ensuring that contractual obligations are met. If the principal breaks a contract, an obligee can file a claim with the surety company to recover any financial losses. Often, the surety company can then seek reimbursement from the principal.
Find the surety bond you need.
We work closely with leading personal and commercial surety bond providers whose dedicated teams can help make sure you get the bond that's right for your situation. Here are some common bonds you can purchase.
Commercial bonds
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Title Bonds
These may be required to register a vehicle if the original title is lost, stolen or damaged. Same goes for anyone who buys a car and discovers the title is missing or incorrect.
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License Bonds
Also known as permit bonds, state or local governments may require businesses to get these in order to obtain a license to perform work in that jurisdiction. Typically, the bond guarantees compliance with building codes.
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Public Official Bonds
These help guarantee that notaries, tax collectors, sheriffs and other public servants will faithfully perform all official duties.
Contract bonds
Bid Bonds
These help ensure contractors enter project bids in good faith. If contracts are awarded, performance and payment bonds are also provided.
Performance Bonds
These help guarantee contractors will perform all tasks associated with the bond's terms.
Payment Bonds
These help guarantee contractors will pay for labor and materials.
Maintenance Bonds
These help cover losses due to faulty design, workmanship or materials.
Court bonds
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Defendant Bonds
If a judge denies an appeal, these bonds help guarantee the original judgment is paid in full. They can also be referred to as appeal or supersedeas bonds.
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Plaintiff Bonds
If a court rules in favor of a defendant, these bonds help guarantee the defendant is paid for damages. These bonds can also be referred to as attachment or replevin bonds.
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Cost Bonds
These are required to guarantee payment of court costs associated with litigation.
Fidelity bonds
Employee Retirement Income Security Act, or ERISA, Pension Bonds
ERISA bonds are required for benefit, pension and retirement plan trustees, and must cover up to 10% of the plan's assets. They help protect employees from trustee wrongdoing.
Business Bonds
These help protect a business owner's clients if their employees commit theft or fraud while on the job.
Employee Dishonesty Bonds
These help guarantee bonded employees will handle their employers' money and property in good faith.
Fiduciary bonds
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Probate Bonds
These help guarantee the individual handling a deceased person's assets faithfully performs their duties.
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Guardianship Bonds
These help guarantee appointed guardians care for and manage all assets belonging to minors, elderly or disabled individuals.
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Administrator and Personal Representative Bonds
These are required to help protect the disposition of a deceased person's estate if they didn't leave a will.
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Executor Bonds
These are similar to administrator bonds, but the estate handling is subject to the terms of the will.
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Conservator Bonds
These help guarantee conservators will be responsible for the finances of minors or others who aren't capable of managing them.
Surety bond FAQ
The most common use of the word "bonded" comes from the phrase "licensed, bonded and insured." To be bonded simply means a business has a surety bond.
If consumers file claims for things like unsatisfactory or incomplete work, the bonds may help provide the money necessary to settle those claims. The surety company can then seek reimbursement from the business.