Surety Bonds in Prairie Village, KS

Surety bonds are vital financial instruments that can help businesses in numerous ways. While often considered insurance, surety bonds are a distinct solution that may be required for certain contract agreements.

The Three Parties of a Surety Bond

Simply put, surety bonds help guarantee that work will be completed satisfactorily, as outlined in a contract. This is accomplished by utilizing a system involving three parties:

• The obligee is the entity that requires the bond, often a client.
• The principal is the entity that obtains the bond; for instance, a company soliciting work from a client.
• The surety is the entity, such as an insurance company, that financially guarantees compensation to the obligee if the principal fails to meet their end of the agreement.

Example of How a Bond Works

Suppose a contractor agrees to complete a project for a client. As part of the agreement, the client requires the contractor to purchase a performance bond.

Midway through the project, the contractor defaults and ceases production. Since the work is incomplete, the client files a claim against the performance bond.

Then, it’s up to the surety to review the situation and find an amicable solution. This may involve hiring a new contractor or paying the client for the value of the bond.

After compensating the client, the surety will seek to recoup the payment from the original contractor, since surety bonds function more like a line of credit than traditional insurance.

Businesses That Can Benefit from Surety Bonds

Surety bonds can benefit numerous types of organizations across industries:

• Commonly required: Contractors and construction companies, as well as licensed professions such as notaries, auto dealers and mortgage brokers.
• Situationally required: Manufacturers, IT companies, service-oriented businesses and healthcare providers, depending on contract terms or regulatory requirements.

Available Types of Surety Bonds

Various types of surety bonds are available depending on the project, industry, contract requirements and other details. Some surety bond examples include:

• Bid bonds
• Performance bonds
• License and permit bonds
• Payment bonds
• Maintenance bonds

Where to Learn More

Surety bonds can be a complex topic, especially considering the many options. Let Bovard Insurance Group help make sense of what’s available and how they may benefit your business. Contact us today to learn more.