A Surety Bond is a contract involving three parties.
In the event of a loss or failure to perform, the Surety Bond pays the oblige, not the principal. Surety Bonds work more like credit than insurance.
Insurance is an agreement between two parties where the entity paying the premium receives the benefit in the event of a loss.
Surety Bonding consists of two types: Commercial and Contract Surety Bonds.
Commercial Surety Bonds, in most cases, are easier to obtain as they typically require only a signed application and current financial statement.
The second type of Surety Bond, Contract, is the form you are most likely to encounter in large construction projects, particularly when public entities are involved. Contract Surety Bonds are commonly used in the construction industry to guarantee the performance of a contract. They include bid, performance and payment, and supply type obligations.
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