When agents and clients come to Goldleaf, it is often their first time working in the world of surety, and they are not even sure what a bond is or what it does. For this reason, we often find ourselves going over some very common bond basics with all of our clients.
There are several commonly asked questions that I would like to address over several blog posts – starting with the following:
What is a surety bond?
A surety bond is a three party agreement which legally binds together the party needing the bond (principal), the party requiring the bond (obligee) and a surety company providing the bond. The surety company guarantees that the obligations of the principal to the obligee will be performed in accordance with a contract, statute or regulation. Bonds are used to protect public and private funds from financial loss.
What are the benefits of surety bonds?
Surety bonds are a mechanism for transferring risk. The surety company assumes the risk of the principal doing business from the obligee. Federal, state and local governments generally require surety bonds to give certainty that business owners and individuals will adhere with various laws safeguarding public funds. For example, license bonds protect the public from business impropriety. Contract bonds protect taxpayers by pledging that projects are finished appropriately, on time and without liens. Court bonds, public official bonds, and government and miscellaneous bonds protect and secure public funds and private interests.