A surety bond is not an insurance policy, but a financial guarantee. Surety bonds are written agreements whereby the “Surety” promises to pay the “Obligee” if the “Principal” fails to meet certain obligations as outlined in the bond agreement.
The application process is often more involved than it is with an insurance policy. You can speak with a Moody insurance agent to go through all the ins and outs with you. Should Moody Insurance have to respond financially on your behalf under this type of bond, you would be approached for financial satisfaction, which is why an indemnification agreement is part of the application.
The parties involved in a surety bond are:
- Principal: Performing the contractual obligation
- Obligee: Whom the Principal is obligated; protected by the surety bond
- Surety: Company promising to pay the Obligee under the bond agreement
Types of Surety Bonds
These are the primary types of surety bonds to understand:
- Contract Surety Bonds: Guarantee the Obligee will perform according to the terms of a written contract. This bond protects a project owner by guaranteeing a contractor’s performance and payment for labor and materials. Because the contractor must meet the surety company’s pre-qualification standards, lenders are also indirectly assured that the project will proceed in accordance with contract terms.
- Performance Bonds: Guarantees performance of the terms of a contract. These bonds frequently incorporate payment and maintenance bond liability, protecting the owner from financial loss if the contractor fails to perform in accordance with contract terms and conditions.
- Payment Bonds: Guarantees payment of the contractor’s obligation under the contract for subcontractors, laborers, and materials suppliers associated with the project. Liens may not be placed on public jobs, so this bond may be the only protection for those supplying labor or materials to a public job.
- Bid Bonds: Used by owners to pre-qualify contractors submitting proposals on contracts. It provides financial assurance that the bid has been submitted in good faith and that the contractor will enter into a contract at the price bid. Bid bonds simply guarantee that a contractor will enter into a contract at the amount bid and post the appropriate performance bonds.
Moody Insurance will assist you with the application process which involves a thorough underwriting of your company; background and experience, references, current work on-hand, and financial standing. Especially for projects over $100,000; establishing a bonding line of credit is similar to applying for any other type of credit, and the process may take about four to six weeks.
About Moody Insurance Worldwide
Moody Insurance Worldwide, a division of Moody & Associates that was founded in 1914, is a leading provider of risk management programs and insurance coverage to individuals and businesses across the East Coast. We write all sizes of businesses, with technical expertise in many key industry areas, and provide personal insurance programs for estates and high net worth individuals. Our licensed, experienced commercial account managers can work with you to determine the coverage that you need at a competitive rate. Contact us today at (855) 868-0170 to learn more about what we can do for you.