Three Most Common Types of Surety Bonds

Posted by on Jun 25, 2015 in News | 0 comments

Three Most Common Types of Surety Bonds

In the face of a set of particular risks, surety bonds are designed to guarantee performance so each surety bond must be uniquely tailored to meet specific needs.

So what is a surety bond? It is an agreement under which one party, the surety, guarantees to another party, the obligee, the performance of an obligation by a third party, the principal.

There are three most common types of surety bonds:

Contract Surety

The owner of a construction project or a government project may require a contractor to obtain one of these bonds which include:

  • Bid Bond – This affords protection to a project owner (obligee) in the event a successful bidder will not enter a contract and will not provide the required surety bonds or other security.
  • Performance Bond – This provides protection to the obligee if the contractor defaults on its obligations under the bonded contract.
  • Payment Bond – This guarantees that the contractor will pay subcontractor, labor and material bills associated with the construction project.

Special Risk

This includes coverages for the Securities Industry

Commercial Surety
This type of bond is required of individuals or businesses by the government, legislation or by other entities.  Most insurers provide the following types of commercial surety bonds:

  • License and permit bonds: required by state, municipal or federal ordinance or regulation. These bonds may be required as a condition for engaging in a particular business or exercising a particular privilege. Examples include performance and payment bonds, customs bonds, tax bonds and warehouse bonds.
  • Court bonds, including:
    • Judicial bonds, required of either a plaintiff or defendant in judicial proceedings, to reserve the rights of the opposing litigant or other interested parties
    • Fiduciary bonds, required of those who administer a trust under court supervision.
    • Public official bonds: required by statute for certain holders of public office, to protect the public from malfeasance by an official or from an official’s failure to faithfully perform duties.
  • Miscellaneous bonds: do not fit into any of the other categories above.


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