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Understanding The Different Types Of Surety Bonds


If you are in business in any of a wide range of industries, surety bonds are likely to be part of your business insurance package. These bonds are used in a variety of business situations in which an additional guarantee for the quality of service or products is required. The following is some basic information about the different types of security bonds used in business today.

Contract Surety Bonds

These bonds are designed to ensure that the obligations of a construction contract are met. They are used by construction companies, general contractors, and federal government subcontractors. Also known as construction bonds, contract surety bonds are typically required for commercial and federal real estate projects. Their purpose is to ensure that the job will be legally completed as promised by the contractor. In the course of a project, developers may require contractors to be bonded by several different types of contract surety bonds, including:

  • Bid bonds
  • Supply bonds
  • Payment bonds
  • Performance bonds

Commercial Surety Bonds

This type of bond ensures that licensed companies will comply with all codes and regulations. They are used by companies required by law to operate with a license. Also known as license and permit bonds, commercial surety bonds are the type most commonly issued. They are required for those seeking to obtain a professional license, including automobile dealers; freight and insurance brokers; notaries public; suppliers of durable medical equipment, prosthetics, and orthotics; and businesses opening medical or retail marijuana dispensaries.

Fidelity Surety Bonds

Fidelity bonds protect companies and their customers and clients from employee theft. They are typically not required but are often used by businesses whose employees handle large amounts of cash or assets. These bonds protect against property damage caused by employees, as well as theft, burglary, forgery, and embezzlement. There are different types of fidelity surety bonds, including:

  • Business services bonds: To protect against loss of customers’ money, supplies, equipment, and personal belongings due to dishonest acts of an employee while on the customer’s premises.
  • Standard employee dishonesty bonds: For business protection from financial loss caused by fraudulent activities of employees.
  • ERISA bonds: To protect participants and beneficiaries of pension plans, including 401(k)s, from dishonest acts of a fiduciary.

Court Surety Bonds

These bonds are used by individuals or companies with fiduciary duties and by companies involved in court proceedings. They are typically required for plaintiffs, not defendants. The purpose of court surety bonds is to protect from loss in the case of a lawsuit. They are often requested by the court when a judgment is appealed to a higher court to guarantee that appellants will cover the court costs if the appeal is unsuccessful.

What Types Of Surety Bonds Does Your Business Need?

Business insurance needs can be complicated in today’s business environment. Our knowledgeable agent will be happy to review your entire business insurance package with you to ensure you have the surety bonds and all the coverage you need at the best available rates.

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