What Is a Surety Bond? How They Work, Where to Get One

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What is a surety bond?
- Obligee: The party requiring a guarantee that work will be performed according to certain terms.
- Principal: The business that is hired to perform work according to the terms of the bond.
- Surety: The entity issuing the bond and guaranteeing that the principal will meet its obligations. The surety, typically an insurance company, is financially responsible to the obligee if the principal fails to meet obligations.
How do surety bonds work?
- Your company is hired for a job. Say a local government agency hires you to build a road. The government agency wants a guarantee that work will be completed in a certain time frame and in accordance with local laws. In this example, the agency is the obligee and you are the principal.
- You enlist a third company, known as the surety. The surety writes an agreement or bond, guaranteeing the work will be done according to the terms spelled out in the bond. The surety’s role is to assure the government agency that you will complete its work as agreed.
- The surety compensates the obligee, if needed. If you don’t finish the project correctly, the surety will be financially responsible to the government agency. The surety then recoups its costs from you.
What are surety bonds used for?
Types of surety bonds
Contract bonds
- Bid bond: This type of bond covers the project owner if a contractor wins a project bid but does not end up signing a contract.
- Payment bond: This bond guarantees a project owner that a contractor will pay bills for labor and materials or to subcontractors and suppliers.
- Performance bond: This bond assures the project owner that if a contractor does not perform the work, the surety will find another contractor to ensure the project is completed according to the contract.
- Warranty or maintenance bond: The project owner is protected against any material defects or workmanship issues that may be found during the warranty period.
Commercial bonds

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How to get a surety bond
- Travelers was the largest writer of fidelity and surety bonds by premium value in the first half of 2021, according to the Surety and Fidelity Association of America.
- The Hartford has a dedicated bond division that can issue commercial as well as construction surety bonds.
- Nationwide offers commercial, construction and court surety bonds, along with fidelity bonds.