Surety bonds are similar to insurance, in that they are risk transfer method. Unlike insurance, they involve three parties:
- Surety Carrier
Insurance only involves two parties: Insured and Insurer.
A surety bond is a guarantee for the principal’s obligations to the obligee (usually the principal’s customer). In the event of a claim, the principal is financially liable, not the surety carrier.
The surety simply guarantees the principal and will require the principal to reimburse them if payments are ever made on their behalf.
Surety carriers underwrite based on financial strength, so they are more like a bank issuing credit, in some ways, than an insurance company.
SURETY BONDS VS INSURANCE
|PRODUCT||WHO?||GUARANTEE?||WHAT’S COVERED?||WHO’S RESPONSIBLE?|
|Surety||Obligee requiring the bond; Principal needing the bond; Surety company supplying bond||Commitment by Principal||Customer of the Principal (i.e. the Obligee)||Principal is responsible for covering any claims|
|Insurance||Consumer and Insurance company||Coverage for losses||Consumer buying the insurance||Insurance company pays claims|
Types of Surety Bonds
Surety bonds can be broken down into four main categories:
- License & Permit – Auto Dealer, Contractor License, Freight Broker, Notary and many others
- Construction Bonds – Performance, Supply, Payment, Bid bonds and many others
- Commercial Bonds – Employee Theft, Janitorial Service, and many others
- Court Bonds – Probate, Custodian, Executor and many others
There are companies who specialize in providing bonds like those at BaysideSurety.com. At Shields Insurance Agency, we issue many types of bonds as a courtesy to clients, but the only ones we really focus on issuing are Construction Bonds. Our contractor clients often require Bid and Performance bonds and we have the expertise to handle these needs.
Surety Bonds, clearly, won’t protect you from every type of exposure your business may face. As a result, there are other types of insurance designed to meet your entire needs.
Here are a few:
- Commercial General Liability
- Commercial Property
- Business Owners Policy
- Professional Liability
- Employment Practices Liability
- Directors & Officers Liability
- Fiduciary Liability
- Business Auto Liability
- Workers Compensation
- Cyber Insurance
- Flood Insurance
- Commercial Umbrella
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Most people don’t understand their unique risks or their insurance and are therefore buying the wrong coverage and paying too much. If you work with our insurance agency, we will implement our simple 3-step process to identify your key exposures, improve insurance coverage and reduce rates.