Surety Bonds

A surety bond is a contract between at least three parties. The first party, or principal, makes contractual promises to a second party (the obligee). In the event the principal defaults on the terms of the contract, the third party (the surety) surety pays obligee for determined by the contract up to the maximum amount specified in the surety contract.

The premium paid by the principal for this surety credit is dependent on the risk to the surety organization and the principal's ability to perform within the terms of the contract.

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Sample uses of a surety bond

• Contruction contractors may be required to provide the property owner a performance bond for fulfilling the terms of the contract.
• A person in a position of private or public trust may provide a bond to ensure the proper performance of fiduciary duties.
• A bid bond may be required to participate in some competitive bidding processes to ensure the entity that submits the low bid then fulfills the terms of the contract for which they bid.

Frequent questions

Learn more from our Commercial insurance infosheet.