A surety bond is a type of contract that guarantees parties to the contract will meet all of their obligations. These parties include the principal (the party that needs the bond), the obligee (the party that requires the bond) and the surety (the insurance company guaranteeing the principal will fulfill its obligations).
People often do not fully understand the nature of surety bonds and how they work. This is because the purpose varies in some ways, based on which party’s perspective you’re coming from. While they are similar in some ways to bond insurance in San Antonio, TX, they are also part credit, which adds to the confusion.
Let’s take a closer look at what you should know about surety bonds in San Antonio before becoming party to one.
The workings of a surety bond
Surety bonds, as we touched on above, act as a sort of insurance policy for the party that requires the bond to be put in place (the obligee), which is typically a government agency. The bond is put in place to protect the government and its citizens, as there is some risk associated with the deal from the obligee’s perspective. The principal must obtain and pay for the surety bond.
The obligee can file a claim if the principal does not follow through with the promise associated with the bond. This is where the bond also acts as a sort of credit, in that all claims must be repaid by the principal to the surety.
If you are required to obtain a surety bond for a deal, you are also required to abide by all terms of the bond—a failure to do so will result in claims against you. If a claim is filed against you, you will then be required to pay the claim in its entirety, as well as any applicable legal costs associated with the claim. While the bond is backed by the surety, the surety will also require an indemnity agreement signed by your company and all owners.
These indemnity agreements essentially put up your personal and corporate assets as a means of reimbursing the surety in the event of any claims (and associated legal costs). It is how you can guarantee that you’re capable of fulfilling your end of the deal. Think of how a person must put up collateral for a bail bond to be able to get out of jail—the same principle works with surety bonds, just in a very different type of setting and transaction.
Getting a surety bond
So how do you obtain a surety bond? You’ll need to first determine the type of bond you’re looking for. If it’s for a specific contract, you’ll want a contractor bond. Otherwise, other types of bonds include license bonds, court bonds and fidelity bonds.
We encourage you to contact Pan American Insurance, Inc. today if you have any questions at all about the type of bond you need and how to obtain a surety bond in San Antonio, TX.
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