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What Are the Different Types of Surety Bonds?

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  • Written By: Geisha A. Legazpi
  • Edited By: Allegra J. Lingo
  • Images By: Diter, Anna, Daniel Oines
  • Last Modified Date: 16 October 2018
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    Conjecture Corporation
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There are dozens of types of surety bonds, and they differ depending on the purpose they serve and in what industry they are used. Some of the most commonly used surety bonds are court and bail bonds, contract bonds, license bonds, and fidelity bonds. A surety bond is a financial instrument that serves as a legally binding agreement for the surety to pay a certain amount of money to the obligee if the principal fails to meet an obligation specified in the bond. There is no way of absolutely guaranteeing that the principal would be able to meet the requirements specified in the bond and also no way of preventing the principal from becoming insolvent. Surety bonds are often issued by insurance firms or those whose solvency can be confirmed by the government or through private auditing.

Court bonds are one of the two primary types of judiciary bonds. Bail bonds are posted to ensure a person’s appearance in court. This person could put up a small percentage of the bail while the remaining balance is taken care of by a third party, such as a bail bonding agency. The amount would be refunded when the person shows up in court.

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Surety bonds are also frequently used in the corporate world. Contract bonds are one example of bonds in day-to-day business. Also known as construction bonds, these bonds serve as a contract that binds a construction firm to fulfill its obligations to the letter. Those obligations have usually been specified in the bid submitted to the property owner. They can also be classified as performance bonds, which are typically issued by insurance companies, because they guarantee that a particular performance would be achieved by the principal.

License bonds are another commonly used financial instrument in various industries. Often called permit bonds, they basically guarantee that the principal would meet all governmental requirements for a particular job or activity. In exchange, the principal would then obtain the necessary permit or license to legitimately operate or work in a particular area.

Insurance companies frequently use fidelity bonds. These can guarantee payouts for damages caused by an employee’s negligent or fraudulent actions. In some cases, companies that do business with securities also make use of these bonds.

Surety bonds expedite the processing of various business and financial transactions. Bonds should only be accepted from reputable companies. This will help reduce any chances of a legal dispute arising from the transaction later on.

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