Bonding Lines Insurance

Surety insurance is a common but erroneous term that pertains to surety bonds. A surety bond is an amount of money one party posts as a gesture of good faith. Surety bonds frequently require sizable amounts of money, and companies requiring surety bonds depend on bonding agencies that contribute the money for them. In the event that the bond is forfeited, the business then owes the entire amount of the bond to the bonding agency.Surety bonds are particularly crucial in the housing and construction industries. Construction surety bonds, also called contract bonds, can comply with one of three forms. A bid bond is occasionally needed by government agencies to check that the company is making its bid on a project in good faith. A performance bond ensures that the company will complete the work detailed in its bid. A payment bond offers security to subcontractors and other parties who render services and deliver materials to a construction company.

A surety bond functions as an agreement among three parties. The surety agent pays a specific amount on behalf of the principal (the construction company) to post the surety bond. The bond forms an act of good faith between the principal and the principal’s client, also known as the obligee.
If the principal does not meet the terms of the agreement, the surety agent will pay the amount to the obligee. The surety agent may then pursue legal action against the principal for its failure to meet the agreement and to recover the surety funds.

Surety bonds differ in size, scope and terms. A typical construction contract bond is valued at 0.5 percent to 2 percent of the total job cost. The rates vary based on the type of project, the credit history of the principal and the probability that the bond will be forfeited.