Description
- A surety is a person or party that takes responsibility for the debt, default or other financial responsibilities of another party.
- A surety is often used in contracts where one party’s financial holdings or well-being are in question and the other party wants a guarantor.
- Surety bonds are financial instruments that tie the principal, the obligee—often a government entity—and the surety.
- In the case of surety bonds, the surety is providing a line of credit to the principal so as to reassure the obligee that the principal will fulfill their side of the agreement.
Coverage Details
Who needs it?
A commercial surety bond is required by governmental entities to protect public interests. Typical principals include licensed contractors, automobile dealers, lottery-ticket sellers, liquor stores, notaries and licensed professionals.
The cost of a contract bond is typically based on the contract amount and will often range from 0.5% to 3% of the contract price. Surety underwriters will also consider the contractor’s character, cash flow, credit score and work history during the underwriting process.
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