Most of the people are afraid of bonding. They are not sure of what to do and how to get bonded. JW surety bonds helps to get the word on their free Q & A forums and surety bond blog on getting bonded. Answers are given by agents and underwriters from various companies throughout the country. A surety bond is a three-party agreement between the principal, obligee, and surety. The obligee requires the principal to obtain the bond, and the surety is the carrier backing the guarantee.
The principal may be the party paying for the bond, but the principal does not receive any funds in the event of a claim. The bond covers the clients of the principal; for instance an electrical contractor could have a claim on his/her bond, in which case the obligee (the client he/she is doing the work for) would recoup funds to pay another contractor to finish the job. The surety would look to the principal for payment of the claim and the associated attorney fees.
Surety bonds also differ from your typical insurance in that when an underwriter looks at an account they will write it assuming there is no claim/loss in the future. This is another reason why everyone is not qualified; they do not want to write risks which may have a claim. Insurance will write risks assuming there is a loss upcoming in the future and will adjust the premium accordingly.
The surety bond types are:
Commercial Bonds – guarantee the principal’s performance of an obligation as listed on the bond. (e.g. Auto Dealer Bond, Mortgage Broker Bond, Wage & Welfare Bond, etc.)
Contract Bonds – guarantee the contractor (principal) will perform the work and pay their suppliers, subcontractors, and laborers. (e.g. Bid Bond, Performance Bond, Subdivision Bond, etc.)
Court Bonds – also known as fiduciary bonds; guarantee the performance of fiduciary services in compliance with a court order. (e.g. Guardianship Bond, Executor Bond, etc.)
Fidelity Bonds – are not surety bonds, but a type of insurance.
The principal (you) pays a percentage of the bond amount called a bond premium. In return, the surety extends “surety credit” to make the required guarantee (the bond). A claim can arise when the principal does not abide by the terms of the bond. In the event of a claim, the surety will investigate to ensure it is valid. If the claim is valid, the surety will look to the principal for payment of the claim and any associated legal fees. Bond premiums vary greatly depending on the applicant, the bond type, surety, and the obligee. Just like other forms of credit, everyone does not receive the same rate. Standard market rates are typically anywhere from 1-3%, while higher risk markets can range anywhere from 5-20% of the bond amount.
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