Many businesses secure bonds. They can be useful to attract and retain clients; in some cases, they may be required by law.
The knowledgeable team at Chichester Insurance Agency Inc. can help you obtain the right bonds for your business. Contact us today for more information.
A surety bond provides assurances that your business will meet your contractual obligations or follow applicable regulations. It is a contractual agreement among three parties: the principal who purchases the surety bond, the obligee who requires the principal to purchase a bond, and the surety who underwrites the bond. The principal may be a contractor or business, the obligee may be a governmental or private party, and the surety may be an insurance company.
How Do Surety Bonds Work?
If an obligee wants a guarantee that a principal will complete a project in a certain way and in accordance with applicable regulations, they may require that the principal secure a surety bond. The principal may purchase a surety bond from a surety (e.g., an insurance company) after the principal clears an underwriting process.
If the principal fails to meet the surety bond’s terms, the obligee may make a claim against the bond, and surety will typically investigate that claim. Following this, the principal may have an opportunity to resolve the issue, but if they don’t, the surety may provide financial compensation to the obligee up to the bond’s amount. Then, the surety will seek reimbursement from the principal to recuperate those costs.
Being bonded may help businesses attract and retain clients since they provide financial guarantees jobs will be completed as specified. Additionally, since businesses must go through underwriting to obtain a surety bond, clients may be reassured of the legitimacy of that company.
Types of Surety Bonds
There are numerous types of surety bonds. Contract bonds and commercial bonds are two common varieties.
Contract bonds provide assurances that businesses will fulfill the terms of a contract. Examples include:
· Bid bonds provide assurances a contractor put forward a bid in good faith, and that they will begin a project if they are awarded the contract.
· Performance bonds guarantee a business will complete a project in accordance with the terms of the contract they were awarded.
· Maintenance bonds guarantee a defect in design, workmanship or materials will be remedied. Maintenance bonds are usually effective for a fixed term (e.g., 12 months) after a project is finished.
Commercial Surety Bonds
Commercial surety bonds provide assurances that a business will comply with specific requirements. For example, license and permit bonds guarantee that a company will follow all local, state and federal regulations laws applicable to their industry.
Other types of surety bonds may be available in addition to the ones listed above. Businesses may also obtain fidelity bonds which function as a type of business insurance to cover dishonest acts (e.g., theft, fraud or embezzlement) of employees. Contact your agent for more information.
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The professionals at Chichester Insurance Agency can help you obtain the bonds you need. Contact us today to get started.