Understanding the Basics of Surety Bonds
Posted on: March 17, 2015 by Aegis General
Most contractors, land developers and foremen understand that being properly bonded is essential in order to compete in the commercial construction industry. Still, very few construction professionals fully understand the bonding process. Surety bonds play a vital role in not only licensing, but securing projects and contractual obligations as well. Below is a brief guide to help agents and their clients better understand surety bonds and the bonding process.
What are Surety Bonds?
Surety bonds are commonly defined as three-party agreements designed to ensure contractual obligations and project completion. Essentially, these bonds are a form of financial assurance that the contracting entity will complete a project according to the terms specified in the contract, and properly pay all applicable bills and expenses. Unlike business insurance, which is obtained for the welfare of the policy holder, surety bonds are acquired for the benefit of an obligee, such as the project owner. Surety bonds are financial agreements between a business and the surety provider that transfer financial responsibility to the surety company in the event that something goes wrong during the fulfillment of the bond holder’s obligations.
What triggers a Surety Bond claim?
Unlike insurance claims, surety claims are not caused by accidental losses. Instead, surety claims arise when a contractor is unable to fulfill their contractual requirements for one reason or another, therefore falling into contractual default. In these cases the surety company is obligated to take the necessary measures to ensure that the contractual obligation is fulfilled. In some cases this means finding another contractor to fulfill the contract, while in others it could require that the surety provider compensate the third party for their financial loss.
The process of becoming bonded can be complicated depending on the circumstances. Working with a reputable and knowledgeable surety service can help ensure that your clients receive quality products at competitive rates. At Aegis General Insurance Agency, we are that source. We deliver commercial surety bonds to a wide range of businesses to satisfy both local and state regulations. You can rely on our strength, responsiveness, fair underwriting decisions, flexible thinking and creative underwriting solutions when it comes to meeting your clients’ surety bond needs. To learn more about our operation and becoming a producer with us, contact us today at (866) 662-5752.