Few people are familiar with surety bonds, but certain business owners may find that they need to obtain one in order to continue operations. This article provides a broad overview of the basics. We invite you to contact your independent insurance agent for more details.
Surety bonds essentially act as a contract between three parties:
- The principal: The party required to purchase the bond
- The obligee: The party that the bond is designed to protect
- The surety: The company that issues the bond and backs the agreement
If the principal acts out of bounds with laws or contracts, the surety compensates the obligee for losses. The principal then must reimburse the surety. Therefore, a surety bond is less like insurance and more like a credit.
There are three main categories that house a wide variety of surety bonds.
- Commercial bonds: These are required of various businesses (such as mortgage brokers, car dealers, alcohol manufacturers and more) to ensure that operations stay within the rules and regulations of the state and your business license.
- Contract bonds: These are required of contractors during various stages of construction projects, mostly for the government (in order to protect taxpayer dollars). They help enforce deadlines and certain responsibilities, like paying suppliers what they’re due.
- Court bonds: These are required as guarantees during trials and other legal proceedings.
Much like an insurance policy, the premium you pay for a surety bond will be determined by a variety of factors. Your credit score plays a large role and with good credit, you’re likely to pay from one to three percent of the total cost of the bond. Poor credit often leads to a significantly higher percentage.
For lower premiums, it helps to provide a resume that proves your experience and dependability, along with your business’ financial statements to demonstrate the company’s financial strength. Want more details about specific bonds and pricing? Contact your agent for personalized assistance.
Get a quote today. Call Texas Insurance Agency at (713) 675-2626 for more information on Houston surety bonds.