A surety bond is an agreement consisting of 3 people:
- the obligee - recipient of the obligation
- the principal - the primary party performing the obligation
- the surety - assurance to the obligee the principal will fulfill obligation
The agreement of the bond is a guarantee that the surety will meet the obligation due to the obligee from the principal if the principal does not meet the obligation. A bond will always protect the obligee, not the principal.
Surety vs. insurance
A surety assures the obligee that the principal will fulfill the contractual obligation.
An insurance policy is a 2-party agreement where the insurer agrees to reimburse the insured as a result of a loss by a designated cause.
Types of Bonds
- Contract Bonds
- Commercial Surety Bonds
- Fidelity Bonds