A surety bond is a contact that is agreed upon between the owner of a project or business that guarantees that the project will be completed or the regulations that will bind the contact. The main aim of a surety bond is to ensure that all the specifics of the contract will be fulfilled thus making sure that all parties in the contract are brought together in a legally binding contract.
In general, a surety bond is characterized by a number of features. It has a principal who is the individual that is buying the bod so as to guarantee good performance of other parties bound by the contract. Another party involved in a surety bond is the obligee. This is the party that needs the bond. Obligees are mostly agencies of the government that are working to regulate the industry and ensure that there is less likelihood of losing financially.
The third and final party that is involved in the surety bond also known as insurance bond is the insurance company backing the bond. The surety in this case is there to provide a line of credit just in case the principal does not fulfill the task that is specified in the contract.
The obligee can file a claim to the insurance party so as to recover losses incurred in case the principal does not fulfill his end of the bargain. If the claim filed is proven to be valid, the insurance company is then bound to pay reparation to the aggrieved party that should not exceed the value of the bond. The insurer will then expect to be paid in full by the principal as reimbursement for the claims that have been paid.
Surety bonds are important for a number of reasons. One of them is that you will need license and permit bonds so as to start your own business. Those in the business of construction will also need contract bonds before they can start working on publicly funded projects.