A surety bond is a three-party agreement between you, the surety company, and the other party. Purchasing a surety bond doesn’t mean that you’re guaranteeing anything, like a loan or a payment for work. Rather, it means that the company issuing the bond is offering to make good on any promises made when you were hired and subsequently if you or the other party don’t follow through with these promises, you or the other party will be held financially liable to the surety company. There are hundreds of different types of surety bonds based on industry and contract needs. What are some of the most common types of surety bonds issued?
Vehicle title bonds
A vehicle title bond is a surety bond required by state law in order to obtain a bonded title for a vehicle. If you are applying to the DMV to get a bonded title, the DMV will require that you have the vehicle title bond before they will issue the title. Having the bond protects the DMV and the buyer in case of fraud or false information provided by the seller on the application.
The vehicle title bond protects against loss that might occur if someone makes false claims about their identity or ownership of a vehicle. The DMV must be able to confirm that all information on an application is accurate before issuing a bonded title. The vehicle title bond ensures that this will happen.
Contract bonds
A contract bond is a guarantee that the person or company named on the bond will honor the terms of a contract. It’s similar to an insurance policy, but in this case, there’s no risk of loss if you don’t use it.
A contract bond protects all parties in a contract by ensuring that the terms of a contract are fulfilled, no matter what issue may arise. The person or company named on the bond is responsible for fulfilling its obligations under the agreement. If they fail to do so, then they must pay whatever damages were incurred as a result of their failure to fulfill the terms of your agreement.
Commercial bonds
Commercial bonds, also known as business bonds, protect businesses by ensuring their financial performance to other businesses and consumers. There are hundreds of different types of commercial bonds available depending on your industry.
A commercial bond is a type of loan that protects the lender against the possibility that the borrower will default on payments. A lender might issue a commercial bond if they want to provide financing for a project that may take a long time to complete but is not guaranteed to succeed.
Fidelity bonds
A fidelity bond is a form of insurance that an employer can take out for protection against losses caused by dishonest or fraudulent actions by an employee. Sometimes the biggest threat comes from inside of the company.
Fidelity bonds are designed to protect employers from financial losses caused by employees’ dishonesty or fraud. The policy covers losses that occur because of an employee’s theft or embezzlement, acts of violence committed on the job, and other dishonest acts. If a loss occurs, the bond will pay for it up to the amount listed on your policy.
A fidelity bond is different from an errors and omissions policy, which helps protect you if you make a mistake that causes harm to someone else. A fidelity bond will only protect you against losses caused by dishonest acts — not mistakes or negligence.
Bid bonds
A bid bond is a form of performance bond that guarantees compliance with the terms of a contract. Learning how to complete one correctly will help you put your best foot forward on any project.
By completing a bid bond, you are promising to provide the necessary materials and labor to complete a job as specified in your bid. If you fail to uphold your end of the bargain, you’ll be required to pay the full amount of money specified in the contract.
Bid bonds are often used in large contracts where there is no other way for a company to guarantee its ability to provide the materials or services needed for a project. For example, if there’s no other way for your company to ensure that it will have enough employees with certain skills or equipment available at all times, then you might be required to obtain a bid bond from another company if yours fails at some point during the project.
Payment bonds
A payment bond is purchased by contractors to ensure they are paid for their work. A contractor who has a payment bond in place is much less likely to walk away from the job with unpaid bills, leaving subcontractors and suppliers out of pocket.
The purpose of a payment bond is to protect the interests of those who have supplied goods and services on behalf of the principal contractor. In the event that the principal contractor goes into liquidation, or becomes insolvent, then these parties can claim against this insurance policy.
Each surety bond is different with different terms, and factors, to consider when purchasing. It’s important to be informed and make the right decision for your company or individual needs. If you are looking for a surety bond, or just want to learn a little bit more about the business and personal side of surety bonds, we have everything you need to know about them. Get in touch with us at ProBonds.com today!