Bonds
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Need a Surety Bond? A surety bond is a written agreement where one party, the surety, obligates itself to a second party, the obligee, to answer for the default of a third party, the principal.
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If your business serves clients or customers, you must account for the unfortunate possibility that you may fall short of your obligations. Regardless of how committed you may be to delivering reliable products and services, disruptions, delays and errors can happen. This is where surety bonds may emerge as an invaluable loss control measure for you and your clients.
What Is the Purpose of a Surety Bond?
Surety bonds are frequently purchased from insurance companies to provide financial security and reassurance for those involved in formal business arrangements. These products typically entail an agreement between the following three parties:
- The principal, such as your business
- The obligee, such as your client
- The surety, such as your insurance company
As the principal, your business is responsible for purchasing surety bonds should your client deem them necessary. If you cannot fulfill your contractual obligations, the bonds can then be used to compensate the obligee for their losses, at which point the surety may seek compensation from you. This arrangement allows your clients to enjoy peace of mind that they can recoup any losses due to your shortcomings.
How Long Are Surety Bonds Good For?
Surety bonds can often be customized to suit your clients’ needs and the project or job at hand. Bonds typically last at least a year but can often last several. Upon expiration, you may have the opportunity to renew these bonds; however, you may also need to restart the process and purchase new ones. You should also be aware that even when purchased at the same time, different types of surety bonds may vary in duration.
What Is an Example of a Surety Bond?
Surety bonds come in many forms, and specific types are often tailored to particular industries or situations. For instance, construction firms and contractors may often need to purchase performance bonds to provide reassurance that they will complete their services as agreed. Similarly, car dealerships may need auto dealer bonds. Other options may include freight broker surety bonds and surety bonds for notaries.
Are Surety Bonds Risky?
Surety bonds can play a critical role in alleviating risk for multiple parties within business contracts. By purchasing appropriate bonds, your company can ensure that clients and customers have recourse should you fail to fulfill your duties. This can also play a critical role in protecting your reputation, as without surety bonds, you might face costly and lengthy lawsuits.
We’re Here to Help
Contact Sanguinetti & Co. Insurance Brokers today to learn more about surety bonds.
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