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Surety Bonds

Surety Bond Companies

by Michael O'Brien

Surety bond companies provide surety bond insurance for a variety of jobs. Notaries are bonded. Motor vehicle dealers, contractors, and public officials are also bonded. Surety bonds transfer risk from the party legally obliged to perform a job to the surety bond company. In other words, if a problem occurs, the person paying to have a job done doesn't have to be held liable for unnecessary losses caused by the company they have hired to perform that job.

Surety Bond Companies Absorb Risk

In assuming a risk, surety bond companies expect the bonded party to fulfill its obligations. This differs from insurance as insurance companies provide higher premiums because they expect loss. Car insurance expects a reasonable number of car accidents. Their premium reflects this anticipated loss.

Surety bond companies operate with the expectation that bonded parties will legally fulfill obligations. Surety bonds, therefore, are relatively inexpensive. If losses occur, the bond company is obligated to indemnify, or make whole, any expenses. This can be devastating for a bond company.

Types of Bonds

Many types of surety bonds are available. Contract bonds guarantee taxpayers that projects are completed reasonably. License bonds protect the general public from business fraud. Motor vehicle dealer bonds protect car buyers from dealer misconduct.

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