Common Misconceptions about Surety Bonds
Posted on: June 19, 2015 by Aegis General
Surety bonds are an essential part of the construction industry. Whether your client is a general contractor, subcontractor, or specialty contractor their need for this type of contractual agreement between a project owner and construction professional is the only way to guarantee that a job will be completed.
Without Surety Bond Contracts, your clients’ business will not be protected should a contractor’s actions or neglect cause a project to fall through. Unfortunately, there are a variety of myths that have come up about surety bonds and their necessity that could prevent contractors and construction firms from getting the protection they need.
Myth #1: Surety bonds are just another form of insurance. While surety bonds do offer financial protection, as an insurance program would, there are differences! With insurance, the risk is assigned to an insurance company that protects their client. Surety bonds, however, assign risk to the principal, or the party purchasing the bond. The protection in this case is to the obligee, or the person requiring the bond. For example, it could be a business owner who is having a renovation done to his office.
Myth #2: Surety bonds protect the bond purchaser. As explained in our first point, the surety bond actually protects the end customer. The obligee (or business owner) will be awarded financial compensation should the principal (contractor) default on their end of the agreement.
Myth #3: Performance and Payment Bonds are the Same Thing: These bonds typically need to be acquired together; however they serve two different purposes. Payment bonds serve the needs of the laborers on a job while a performance bond ensures the principal will perform the work on the project as specified in the contract.
At Aegis General Insurance Agency, we specialize in providing a wide range of surety bonds; including underwriting bid, performance, payment, supply, and maintenance bonds. Please contact us today for more information at 855.399.0966.