Surety bonds are required in practically every profession in the U.S. There are many different types of surety bonds, but all are essentially an agreement between three parties:
- Principal: the person required to post a bond;
- Obligee: the person or entity requiring the principal to be bonded; and
- Surety: the institution providing a financial guarantee to the obligee on behalf of the principal.
If the principal fails to meet his or her obligations to the obligee – which could mean anything from complying with certain laws and regulations pertaining to a business license to meeting the terms of a specific contract – the surety may have to pay a claim to the obligee. A surety bond is a risk transfer mechanism and a legally binding contract.
Benefits of Surety Bonds
Surety bonds are purchased by a principal because they are required, either by a government entity or as a condition of a contract. However, these bonds provide benefits for the principal as well. They are a cost-effective alternative to posting cash directly with a trustee or the obligee or providing an irrevocable Letter of Credit in lieu of a surety bond.
As the principal, you pay a small percentage of the bond amount to the bonding company (surety) to provide a guarantee to the obligee, rather than parting with your liquid cash. Basically, when you purchase a surety bond, it is a form of credit extended to you.
The cost of a surety bond is based on three factors:
- Type of surety bond
- Amount of the bond
- The risk level of the applicant
If you need a surety bond for professional purposes, contact our agent at Lightship Insurance in Denver, Colorado, for a quote.
At Lightship Insurance, our agency offers free, comparative quotes on Surety & Performance Bonds for Denver and ALL of Colorado from multiple insurance carriers so you can get the best possible rate.
Want to see how much we can save you? Just request a quote from our brokers to find out.