Bonds 101



Menu Bonds 101 Fact: Even though most surety companies are also large insurance companies, qualifying for bonds is more like obtaining bank credit than purchasing insurance. Who determines if a bond is required? The governmental body, project owner or general contractor specifies the bonding requirements.		Learn About Bonds - Bonds 101 Here at Surety Bond Source's "Bonds 101" page you can find answers to many of the common questions regarding the bonds we write. On this page you'll find general bond information. For information on specific bond types, please click the bond type listed on the right. These questions and answers are for informational purposes only. What is bonding? It's a guarantee of correct performance of an obligation. That obligation may arise out of a contractual relationship, or it may exist because of a statute or ordinance governing the Principal's conduct. What is a surety bond? A surety bond is a written instrument in which two parties, the Principal and the Surety, become obligated to a third party, the Obligee, for the completion of an obligation or for the payment of a sum of money if the obligation is not fulfilled. Who is the Principal? The Principal is the party primarily responsible for the fulfillment of the obligation described in the bond. Who is the Surety? The Surety, typically an insurance company, is the party which guarantees performance by the Principal to the Obligee; or failing in performance, the Surety will make good to the Obligee the loss sustained due to lack of performance by the Principal. Who is the Obligee? The Obligee is the beneficiary of the bond. How does Suretyship differ from insurance? With insurance, the insurance company indemnifies the insured against loss. As an example, if the insured incurs a loss by fire, and has purchased the appropriate insurance, the insurance company will reimburse the insured for their loss up to the insurance policy limit. With a bond, the insurance company (Surety) will reimburse a third party (Obligee) for the loss caused to them by the Principal. In the event the Surety is required to pay the Obligee on behalf of the Principal, the Principal is required to reimburse the Surety. A Surety is essentially extending credit to the Principal. The Surety is not insuring the Principal against loss.