What Surety Bonds Are and What They Do


Running a business successfully is essential, and you have probably heard that surety bonds can help you accomplish that. An employee who does poor quality work or cannot do the work at all can seriously damage your reputation.

One way to build trust is to guarantee your work by purchasing surety bonds. You may also need to purchase bonds to satisfy state, federal, or local licensing requirements.

What Are Surety Bonds?

A surety bond is a written agreement that guarantees performance, payment, or compliance. Organizations purchase these bonds to fulfill state, local, or federal requirements to get specific licenses or perform certain types of work. Still, businesses may also purchase them to provide a guarantee to customers or other parties.

The bond documents typically include a bond form that provides information about the bonded company or individual, the surety company, owners, and the surety agent. This document also describes what the bondholder’s obligation is.

Surety companies may issue bonds for a specific amount of time, or the bonds may be continuous. Continuous bonds remain in force until the surety company cancels them.

What Do Surety Bonds Do?

These bonds act as a unique type of insurance that involves three parties:

• The principal purchases the bond and must perform as promised in the agreement.

• The obligee is the person or organization that is requiring the bond. It is often a state, local or federal government agency.

• The surety is a surety or insurance company that assumes liability for any losses that occur because the principal did not perform as promised.

If the principal fulfills the contract, the surety bond doesn’t do anything. However, if the principal cannot fulfill the agreement, the surety company must pay for any resulting damages.

Who Purchases These Bonds?

Many different types of businesses and individuals purchase these bonds:

  1. Construction contractors
  2. Public insurance adjusters
  3. Private investigators
  4. Auto dealers
  5. Credit repair services
  6. Mortgage brokers

Many other professionals may purchase bonds as part of their licensing requirements or to build trust with clients.

When Do You Get The Bond?

Getting a bond is a straightforward process that often takes less than one day. Some people can even purchase bonds online.

Which Bond Do You Need?

There are thousands of different types of bonds. In some cases, the obligee will tell you which bond you need. If you need a bond to fulfill state, local, or federal requirements, contact the government agency that requires the bond to find out what you need.

Millions of people put their trust in licensed professionals every day. Bonds provide a way for government agencies and customers to have peace of mind that trusted professionals will meet their obligations.

About The Hilb Group

Deciding what coverage you need and what limits and deductibles make the most sense can be tricky. Founded in 2009, the Hilb Group has been helping clients to make sense of their options and make the smartest choices for their circumstances. Whether you need Warehouse Insurance or any other type of business or personal coverage, we encourage you to contact our friendly, experienced, and capable team today. Call us at (800) 776-3078 for a consultation.