What Are the Different Types of Surety Bonds? 

A surety bond is a legally binding agreement that can play a key role in your business’s risk management while also fulfilling various obligations. Unlike a traditional insurance policy, a surety bond does not directly protect your business from financial losses. Instead, it covers other parties by providing recourse should you fail to fulfill a contractual or legal obligation. Understanding different types of bonds and when they’re necessary should be a top priority.

The Main Categories of Surety Bonds

Surety bonds fall into a few broad categories, each serving a distinct purpose:

• Contract bonds: These can guarantee a contractor will complete a project according to the terms of a contract. Subcategories include bid bonds, performance bonds, payment bonds and maintenance bonds.
• License and permit bonds: This type is often required by government agencies before a business can receive a license to operate. Examples include auto dealer bonds, mortgage broker bonds and contractor license bonds.
• Fidelity bonds: These bonds can cover a business against losses if an employee or contract worker commits theft, fraud, dishonest acts or causes damage to a client’s property.

Who Needs Surety Bonds?

Contractors, business owners, freight brokers, notaries and many licensed professionals may be required to carry surety bonds. Requirements vary by industry and jurisdiction, so verifying obligations with the appropriate licensing authority is advisable.

Getting the Right Bond for Your Business

Working with an experienced independent agent helps you identify exactly which bonds apply to your situation and connect you with carriers that specialize in them. Contact City Auto Insurance to discuss your bonding requirements and find coverage that keeps your business compliant and your clients protected.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.