Types of Surety Bonds

There are four types of surety bonds that are of primary interest to business owners insurance customers. These types include License or Permit bonds, which are required for several occupations, including all contractors in states such as Washington, Oregon, Alaska, California, and Arizona; Miscellaneous bonds, which are comprised of several different types of obligations; Contract Bonds, also known as bid, performance, and/or payment bonds, and are designed to cover a particular contract; and bonds that are required under some funding programs, such as housing rehabilitation programs or energy conservation remodel programs in order to protect customers of the programs.

  1. License and Permit Bonds – These bonds are required by state law, municipal ordinance, and/or by regulation by federal government of its agencies. In order to be licensed, a contractor is required to have a bond and a certain amount of insurance coverage. The purpose of this type of bond is to safeguard the public health, welfare, morals, and/or assure the safety of the public.

  2. Miscellaneous Bonds – These bonds consist of many types of obligations including fiduciary, financial, license and permit, miscellaneous indemnity, and more. Common types include employer’s, interstate commerce commission, fuel tax, airlines reporting corporation, street obstruction, motor vehicle dealer, vessel dealer, side sewer, and lease bonds.

  3. Contract Bonds – There are three types of contract bonds, which are bid bonds, performance bonds, and payment bonds. A bid bond refers to an obligation undertaken by a bidder who promises that he or she will enter into the contract and furnish the prescribed performance and payment bonds within a specified period of time. A performance and/or payment bond covers the contractor’s actual performance of the contract at hand. It guarantees payment, and is intended to pay laborers, suppliers, and other contract-related costs that the contractor owes to third party members.
The difference between surety bonds and business owners insurance is that with traditional insurance, the risk is transferred to the insurance company, while in surety ship, the risk stays with the principal. The protection of the bond is meant for the obligee.

In traditional business owners insurance, the insurance company considers that a certain amount of the premium for the policy will be paid out in losses. With surety ship, the premiums paid are service fees, which are charged for the use of the surety company’s financial backing and guarantee.

When underwriting traditional business owners insurance, the product’s goal is “spread of risk,” while with surety ship, surety professionals view their underwriting as a form of credit so the emphasis is largely focused on pre-qualification and selection.

For premium business owners insurance information, contact the insurance professionals at Insurancequoteonline.com. We can help you obtain the right insurance coverage for the right price. For more information, click for a free quote or call our insurance specialists at 1.800.649.9094 to speak to one of our friendly and helpful representatives today.

Comments (0)

Leave a Reply