Surety Bond Construction: What You Need To Know

First, it is important for you to know what is surety bonds. Surety bonds has been around for a very long time. There are some people who view bonds as an unnecessary business expense that will simply cut into the profit of the company. There are also other firms that view bonds as a passport that will allow qualified firms to access any projects and also be able to bid on projects that they are able to complete. The construction firms are seeking significant private or public projects and has understood the reason why bonds are very important. In this article, you will be able to have a clearer view on the basics of suretyship as well as a closer look at the surety companies that evaluates bonding candidates, warning signs, federal regulations, bond costs as well as other requirements for small projects. Read more on construction liability insurance here.

So what is a suretyship? This is a form of credit wrapped in a financial guarantee. This is not an insurance in a traditional sense which is why it is called surety bond. The reason for having a surety bond is to make sure that the principal will be able to perform its obligation to the oblige if ever the principal fails to perform its task to finish the project.

There are three parties that is involved in a surety bond and these are the Principal which is the general contractor, the Obligee or the project owner and the Surety whi is the party that receives the benefits of the surety bonds or the insurance company.

What is the difference between a surety bond and an insurance? See more on risk consultants here.

The most distinguishing characteristic of the two is the principal's guarantee to the surety. When it comes to the traditional insurance policy, the policyholder is the one who pays the premium and then receives the benefits if something might happen and if there are any claims that is covered by the insurance policy although it is subject to the terms and policy limits. There is also an exemption to the rule such as the advancement of the policy funds for claims that were deemed not covered.

If you are a non-insurance professional, it may sound strange but surety companies underwrite risk and is expecting zero losses. One of the question is that, why am I paying a premium for a surety? There is only one answer and that would be, These premiums are in actuality fees that is being charged for you to obtain the surety financial guarantee since it is required by the Obligee and to make sure that the project is completed and if ever the principal fails to complete its obligations. Read more at