Surety Bond Insurance
A surety bond guarantees that the person, business, or agency that hired you will get what they paid for. It is a three-party contract by which one party (the surety company) guarantees the performance or obligations of a second party (you) to a third party (the client).
Surety bonds are common in the construction industry since construction involves an agreement between a contractor and their client. A construction surety bond gives the client reassurance that a contractor will uphold these agreements. In addition to construction surety bonds, there are numerous other surety bonds that guarantee the fulfillment of something.
Contractor bonds are a type of surety bond that protects against financial loss due to the contractor's failures, such as disruptions or failure to meet contract specifications. They are frequently required by law for any contractors or businesses working on public projects.
Commercial bonds provide a financial guarantee of your work and protect your clients from risk. The two most common types of commercial bonds are surety bonds and fidelity bonds.
Fidelity bonds, on the other hand, protect you and your clients from certain intentional acts by your employees—such as theft, embezzlement, or employee misconduct. This type of bond is designed for service-based businesses, especially those with employees working on a client’s premises. Your general liability insurance only covers accidents, so a fidelity bond is important for protecting against intentional acts that could ruin your business and your reputation.
Construction Surety Bond Types
- Bid Bond: guarantees you can and will meet bid requirements if you win the bid.
- Performance Bond: guarantees work will be completed as promised and within regulations.
- Payment Bond: guarantees workers and suppliers will be paid timely and legally.
- Maintenance Bond: guarantees materials and workmanship up to two years after completion.
- Completion Bond: guarantees a specific performance obligation.
Other Surety Bond Types
- License and Permit Bond: guarantees that a business will follow applicable codes and laws.
- Court Bond: guarantees you will fulfill your responsibilities as ordered by a court of law.
- Probate Bond: guarantees a fiduciary will fulfill their duties, such as an executor of an estate.
- Financial Guarantee Bond: guarantees payments will be made in full and on time.
- Public Official Bond: guarantees the bonded official will faithfully perform his or her duties.
- Liquor Bond: guarantees a business will pay sales tax it collects on liquor sales.
Fidelity Bond Types
- Business Services Bond: protects your clients from dishonest acts by your employees.
- Employee Dishonesty Bond: protects you from your own employees’ dishonest acts.
- Janitorial & Cleaning Bond: protects your clients from property loss caused by your own cleaning or janitorial -service employees.
- Financial Institution Bond: protects a financial institution from financial loss due to employee dishonesty.
With surety and fidelity bonds, you can show your clients that you stand behind your work, your employees, and your reputation.
What is a construction bond?
A construction bond, better known as a surety bond, ensures the owner receives a finished product at the negotiated price according to the project plans, specs, and contract requirements. Some construction bonds ensure that all project subcontractors, suppliers, and vendors are paid lien free for services and materials provided on the project. Another benefit of a construction bond is it “pre-qualifies” the contractor’s ability or competency.
What are construction surety bonds?
The construction industry regularly involves large agreements between contractors and their clients, and clients often want reassurance that contractors will uphold their portions of these agreements. Construction surety bonds are one way contractors provide that reassurance. Construction surety bonds may be more like lines of credit than traditional insurance policies, but a number of insurance companies offer them. As experts in the bonding arena and with a thorough knowledge of its unique details and requirements, we offer a wide variety of options to guarantee commercial and personal obligations are met. We offer bonds from $1,000 up to $500 million. With our Contractor's Express Program we can obtain up to $500,000 in bonding for you within a 24 to 48 hour period, with only minimum information required.
What businesses need a construction surety bond?
Most businesses in the construction industry can benefit from having a surety bond. This includes (but isn’t limited to): Tradespeople (e.g. electricians, plumbers, etc.), Small general contractors and home builders, Contractors dealing with environmentally hazardous materials (e.g. asbestos), and Constructions companies specializing in roadways and utilities. How large a bond these businesses need depends on the scope of their project. All of these businesses, however, work on sizable projects where clients may request a bond as reassurance.
What types of surety bonds are available to construction businesses?
Because so many construction businesses need surety bonds, insurance companies that offer these bonds frequently provide several different types of specialized ones. One way to categorize bonds is by their role within a construction project. At various phases of a project, a business might need: Bid Bonds, which serve as a guarantee that the contractor who bids on a project will enter into a contract and purchase the required performance and payment bonds; Performance Bonds, which serve as a guarantee that the contractor who enters into a contract will complete the work as promised and follow all applicable regulations; Payment Bonds, which serve as a guarantee that the contractor who enters into a contract will properly pay any workers they use according to all federal and state laws; and Maintenance Bonds, which serve as a guarantee that the contractor who completes a project will compensate the owner for any defects that are found in the contractor’s work. Performance bonds and payment bonds are frequently lumped together as performance and payment bonds.
Do insurance agents help businesses find construction bonds?
Since it’s insurance companies that offer these bonds, insurance agents do help construction businesses find the surety bonds they need. Not all agents are familiar with bonds, however. Businesses that need these bonds should work with someone who is knowledgeable about them.
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