What is a Surety Bond?
A Surety Bond is a form of guarantee. They make a guarantee between three parties. These are: The Obligee, The Principal and The Surety. The Obligee is the person who will be paid if there is a default. The Principal is the person who takes out the bond. The Surety is the person or organisation who guarantees that The Principal will fulfil their obligations. In simple terms, the bond is in place to minimise risks of businesses failing to provide what they have promised to do.
Do I Need a Surety Bond?
Surety Bonds are a major part of the construction industry. Government departments or local councils usually take them out. They are taken out against construction companies to ensure that the department will not lose out financially if the construction company fails to complete the work they are doing on time.
How do Surety Bonds Work?
Surety Bonds are a form of insurance. As such, they do work in a way recognisable to people who have taken out other forms of insurance – although with a few differences. With most insurance, there are essentially two parties involved – the person taking out the insurance, and the person insuring them. Bonds are taken out by one party against another – with an insurer covering the risk of the person insured against for the person taking out the insurance.
Types of Bonds
There are multiple types of bonds. We provide three types of bonds: Construction, Local Authority & Contract. A Construction Bond is focused specifically on construction. They come in one of three types. These are: bid bonds (which ensure that contract bids are made properly). Performance bonds (which ensure completion of works on time). Finally, payment bonds (which give financial security). A Local Authority bond focuses on local governments, and fulfils the need for security when planning works that authorities need. Finally, a Contract Bond is designed to ensure that a contract is completed according to its legal terms.
When you need to ensure that work is done how you expect, you might need a Surety Bond. Get in touch with Axios Insurance & Reinsurance Solutions DMCC today to find out how we can help you.