Surety bonds are usually an interesting topic to study which is suitable for particular businesses. In basic terms, if there is an agreement between three parties, including a principal, a surety, and an obligee. Surety bonds offer financial security and assure that the work will be completed within the given period. Thus, surety bonds are not insurance but rather an assurance. The principal is a party that generally assures completing the work and who is required to purchase the bonds. A surety is a party involved in an agreement that offers a guarantee to an obligee. In case, where the principal cannot fulfill his contractual liability, a surety shall intervene and help in making the compensation. An obligee is a party that receives compensation on account of any default in the agreement. Surety bonds are also termed as financial instruments, which can act as a credit, and therefore no losses shall occur. There are several types of bonds but there are three types of significant bonds, which include commercial, fidelity, and contract.
1] COMMERCIAL BONDS: These bonds are generally used by the state government or legislation. They are often purchased by businesses and professionals to comply with state licensing and permits. These bonds are also required by municipal, state, and federal ordinances. The commercial bonds intend to safeguard the consumers, assuring work completion. Commercial bonds are sub-categorized into two types, which include judicial and court bonds. These bonds shall be required by the defendant or plaintiff in legal proceedings, ensuring the preservation of the rights of the opposing party. Auto dealer and sales tax bonds are other common commercial bonds. Check this out to learn more about commercial bonds and their types.
2] FIDELITY BONDS: These bonds act as insurance for the employer against any wrongdoings of the employee. This means that the employer is safe against any fraud committed by his employee. In case, any employee is handling any precious assets or cash, then the employer shall also consider fidelity bonds. There are various types of fidelity bonds, which include:
-> ERISA BONDS: These types of bonds require the bonded amount, at least 10% of plan assets. ERISA bonds are entered by participants to reduce the risks of any malpractice done by the beneficiary regarding the pensions or benefits for employees.
-> BUSINESS SERVICE BONDS: These types of bonds are specifically suited for corporations, where the employee performs his work at the consumer house. It is undertaken by the employer to mitigate any risk associated with employees.
-> STANDARD EMPLOYEE DISHONESTY BONDS: These types of bonds usually protect the employer financially against any losses incurred by the employee.
3] CONTRACT BONDS: These bonds boost confidence in the project owners that their project shall be finished by the contractor on time. Inability on the side of the contractor may cause him to compensate.
CONCLUSION:
Becoming educated on bonds is necessary. Surety bonds provide various benefits.
