A surety bond is an insurance policy that guarantees that a business or contractor will be able to render their services faithfully. Surety bond insurance is generally required of professionals in industries such as construction and automobile sales, although the laws regarding who needs to purchase a surety bond will vary from one state to the next.
How a Surety Bond Works
Even though there are different types of surety bonds that all have their own requirements, most operate in roughly the same way. A surety bond works as insurance that protects the client being served. If the business owner or contractor in question fails to fulfil their obligations to a client, that client can file a claim against the bond. The insurance company that sold the bond to the principal reimburses the client according to the terms of the bond, while the principal is then responsible for paying the insurance company for the claim.
Industries that Require Surety Bonds
Most surety bonds are written for the construction industry, especially for government buildings and public works projects, or any project that will cost over $100,000 to complete. They are also often required of those in the automobile industry, particularly if someone is selling several vehicles at once.
It should be noted that even though not all states require sales professionals and construction contractors to purchase surety bonds, it is still a good idea to have one. For one, it represents a show of good faith that a principal will fulfill their obligations to their clients. It also shows that a business owner is showing responsibility for their actions and their services. They might still make mistakes, but the public can be sure that any business that has a surety bond is a reputable one.
Surety bonds can be written by insurance agencies throughout the country. No matter where your business may be located, there is bound to be an agent who can sell you the bond you need for your business. Contact an agent near you to learn more about surety bonds and why they are so important to your business.