What Is A Surety Bond?

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Surety Bond Definition Transcript:

Woman: I'm told I need to post a surety bond, but I have no idea what they do.

JW: It can be confusing, but I think I can help. Simply put, a bond is a guarantee of something. Who is requiring the bond of you?

Woman: The Department of Motor Vehicles told me I need the bond to get my auto dealer's license.

JW: In that case, the bond is in place to guarantee you follow the states regulations when operating your dealership. The DMV would be the "obligee" (pronounced ob-li-jee) since they are the party requiring you to post the bond.

Woman: So does that mean I have to give the DMV cash for the bond amount?

JW: No, you would pay a bonding company a percentage of the bond amount to make the guarantee on your behalf.

Woman: So does the bond protect or insure me and my business?

JW: Not at all. It protects the public in the event you break the DMV's rules. Think of it as insurance for your clients, that you are paying for.

Woman: Aaaahhh, now I see.

JW: There are thousands of surety bond requirements throughout the country for just about every profession you can think of. With all of them, there are always 3 parties...the obligee who is requiring the bond, the bonding company backing it, and you the principal being "bonded".

Woman: You've really helped to clear things up. Thank you so much!

JW: No problem. However, I'd suggest you watch our video "Why you need to avoid claims at all costs". There is a lot you don't know and I want to make sure you understand how a claim could be detrimental to your business.