A surety bond is a legally binding agreement involving three parties: the obligee (the entity requiring the bond), the principal (the individual or business purchasing the bond), and the surety (the insurance company issuing the bond). These bonds guarantee that contractual obligations, such as performance, payment, or price agreements, will be fulfilled as agreed. They are often required by state or industry regulations to ensure legal business operations and protect against fraud, financial loss, or unmet obligations.
Are Surety Bonds Insurance?
No, surety bonds are not a form of insurance. While insurance protects the policyholder by transferring risk to the insurer, surety bonds protect the obligee (the party requiring the bond). If a claim is made, the surety pays the obligee, but the principal (the bond purchaser) is legally obligated to reimburse the surety for any claims paid, including legal fees. Learn more.
Surety Bond Agencies and Companies
Surety bond agencies, like Pacific Surety Insurance Agency, Inc., act as intermediaries between clients and surety companies. These agencies specialize in securing bonds from top-rated surety companies, which are insurance organizations that financially back the bonds. Unlike general insurance agents who may offer bonds as a side service, dedicated surety bond agencies focus exclusively on bonding needs, ensuring clients receive expert guidance and competitive rates.
Types of Surety Bonds
Commercial surety bonds encompass a wide range of bond types, including License and Permit Bonds, Public Official Bonds, and Court/Probate Bonds. These bonds are often required by government agencies at the state or local level to obtain business licenses or permits. The term “security bond” is a common misnomer and does not refer to a valid bond type.
Surety Bond Quotes and Pricing
Obtaining a surety bond quote is straightforward. Applicants complete an online application, providing details such as bond type, amount, business information, and owner details, including Social Security numbers. Approval typically takes a few hours, with bonds issued the same day after payment. Pricing is primarily based on the principal’s credit score (FICO) and financial standing. Applicants with strong credit and financial records often receive lower premiums. Co-signers can also help reduce costs for those with poor credit.
Payment and Terms
Surety bonds require full payment upfront, with costs calculated as a percentage of the bond amount. Financing options are available for applicants with poor or no credit. Bonds typically have a term of 1-2 years and must be renewed to remain in force. Refunds are generally prorated after the first year, except for non-cancellable bonds like construction or court bonds, which are ineligible for refunds.
Indemnity Agreements
An indemnity agreement is a critical component of the surety bond process. By signing this legally binding contract, the principal agrees to repay the surety for any claims paid out, including legal fees. Spouses are also required to sign the indemnity agreement, as shared assets may be used for repayment in the event of a claim.
