What Are Surety Bonds?

In the world of business, your company may not always be able to fulfill its obligations as planned. Unfortunately, unforeseen circumstances, accidents and errors may inevitably impact your operations, potentially impacting clients and other parties negatively. In these situations, you’ll be grateful to have planned ahead by implementing and maintaining the right loss control measures. This is where understanding the benefits of surety bonds can be a critical part of your company’s ongoing stability.

How Do These Bonds Work?

Surety bonds are just one of many types of bonds sold by insurance companies. These financial tools may include many subcategories but generally serve the same purpose of securing the fiscal interests of parties that enter into formal business arrangements. After purchasing bonds, binding agreements between the following three parties are established:

• The principal, such as your business, is responsible for purchasing bonds.

• The obligee, such as your client, may impose requirements regarding bonds before rewarding you with a job or contract.

• The surety, such as an insurance company, underwrites and maintains the bonds.

If your company is unable to deliver on its promised services, the obligee may recoup their losses through the previously purchased surety bonds. This can help lessen the need for lengthy and costly lawsuits, which could have both financial and reputational ramifications for your business.

Who Needs Surety Bonds?

Alongside insurance and other types of bonds, surety bonds may form a core pillar of your business’s risk management and loss control measures. In some cases, clients and developers may even require companies to secure appropriate bonds before being allowed to bid on certain projects or jobs.

Learn More

Contact Quality Insurance Services in Irving, Texas, to learn more about surety bonds and identify the right financial protections for your business.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.