Some Important Facts You Need to Know About Surety Bonds |
Posted: June 27, 2016 |
Before we can state those important facts about surety bonds before you actually acquire one depending on the nature of your business, let’s know what a surety bond is all about, shall we? What is a surety bond?A surety bond is designed to guarantee a principal’s integrity and honesty, performance and financial responsibility. These bonds are usually required by the government as a part of the business licensing process for certain types of industries and businesses, especially those that often come into a contract with the government. Now we will get you familiar with some important facts which play an important role in one’s business. Fact #1 - Surety Bonds are NOT Insurance It’s not uncommon for people to confuse surety bonds with the insurance. Kindly know that surety bonds are different from insurance. Of course, you would feel the need to purchase insurance for your licensing requirements, but don’t confuse the same with your surety bond. Both these things are sometimes sold by the same surety bond agency. So, What’s the difference then? Insurance reimburses the policy for a certain amount of money if an event specified in the policy. A surety bond does resemble insurance in that they assure financial compensation up to a certain amount and they’re paid in annual premiums. However, a surety bond will not protect the individual that brought the bond. Fact #2 - Surety Bonds are a Three-party Agreement When you’re getting the type of bond you need for your business, it’s crucial for you to understand what exactly you are signing. Most surety bonds are a three-party agreement between an obligee, a principal, and a surety.
By giving you the bond, the surety guarantees the obligee that you will adhere to the regulations and terms of the bond. And if you want to be bonded, it’s a must for you to sign an agreement stating that you’re legally responsible in case the claim is filed against you. Fact #3 - Surety Bonds are like a Line of Credit One of the most frequently asked questions about surety bonds is how pricing is decided. You might be aware that your credit score is the biggest factor that determines how high your stated quote is going to be. A surety bond works like a line of credit. In case you get a claim against you, then the surety bond agency will pay it for you knowing that you’re lawfully responsible to pay them back, which is like giving a line of credit. Surety bonds can also serve as a protection against fraud, as the surety bond agency does an extensive amount of research to determine legitimacy before it can pay out a claim. It’s important for you to get educated about surety bonds when it comes to acquiring a license which can help you comprehend your obligations to your customers and let you avoid claims that can be detrimental not only to your reputation but the business.
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