What is a surety bond?

Surety bonds protect your clients from your wrongdoing using guarantees from insurance companies on your behalf. What is being guaranteed varies by bond category and type. See the tabs below for more information on each category.

Surety bonds do not protect your company. In fact, if a claim is paid out by the bonding company, you will be required to reimburse them in full.

Surety bonds are beneficial to you, as you only pay a percentage of the bond amount. Without a bond, you would be required to post the amount in full. Bonding companies also have claim departments to help you fight illegitimate claims.

You can think of your bonding company as a business partner that frees up capital and defends your business from fraudulent claims.

These bonds are required to get your license or permit. The bond you need will vary by your occupation and the government department requiring it. All license and permit bonds have one thing in common: they do not protect you, but ensure you will follow laws and the terms of your license or permit.

Miscellaneous bonds are not required to get a license, but also guarantee you will follow the law. They can be required by government departments or third party entities. Visit our bond catalog for a full list of license, permit and miscellaneous bonds.

Contract bonds guarantee you will fulfill the terms of a contract, and they are usually required for construction projects by:

  • Local & federal governments
  • General contractors bidding out projects to sub-contractors
  • Private entities

Private entities requiring contract bonds are usually limited to larger companies, e.g. Fortune 500 companies. Sureties generally do not write bonds being required by smaller companies since they are generally unfamiliar with bonds and their process.

Contract bonds can also be required for non-construction service contracts such as:

  • Trash collection contracts
  • Janitorial contracts
  • Software installation contracts

For a full list of contract bonds, visit our contract bonding guide.

A court bond guarantees that you will fulfill your duties as stated by law or the court, and can be required by state, local or federal courts. Visit our court bond catalog and find a full list of court bonds.

Public official bonds ensure that you will follow all county, municipality or state laws once elected as a public official. They are required by state and local governments for positions such as:

  • Treasurers
  • Tax collectors
  • Court clerks
  • Judges
  • Sheriffs
  • Mayors

Surety bonds are guarantees and are not insurance for you. The guarantees vary by your line of work and the bond type. There are several surety bond categories that provide a wide range of guarantees, which include:

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Surety bonds explained

Transcript: Surety Bonds Explained

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 state's 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 three 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.

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