The three parties in every bond
This is a general explanation. Each bond form has its own terms, and the wording controls.
A bond is not the same as insurance
Insurance generally protects you from loss. A bond generally protects the other party, the obligee, if you fail to meet an obligation. If a surety pays a valid claim, the principal is typically expected to reimburse the surety, which is one reason surety companies look closely at the businesses they bond. Because of that, the information a surety asks for can look different from an insurance application.
Why a contract or license might call for a bond
Bonds show up when someone needs financial assurance that you’ll do what you agreed to do. A few categories of bonds that exist generally, offered as examples of the concept rather than a list of what Jarvis writes:
- Bid bonds
- Some solicitations ask bidders to show they’ll honor their bid if they win.
- Performance bonds
- Some contracts ask for assurance that the work will be completed as specified.
- Payment bonds
- Some projects ask for assurance that subcontractors and suppliers will be paid.
- License and permit bonds
- Some licenses and permits require a bond as a condition of issuing them.
Start with the document that asks for the bond
Whether a bond is required, its type and its amount are set by the contract, solicitation, license or permit. Bring that document, and tell us what it requires.
What helps when you request a bond
- The bond form, contract or solicitation that calls for it
- The bond amount and the deadline, if there is one
- A description of the project or license
- Basic business information, including how long the business has operated
- Financial information, which a surety may ask for depending on the bond type and amount
Common questions
Is a bond the same as insurance?
No. A bond is a guarantee to a third party, the obligee, while insurance generally protects you from loss. If a surety pays a valid claim, the principal is typically expected to reimburse it.
How long does it take to get a bond?
It depends on the type of bond, the amount and the information the surety needs. Tell us your deadline when you get in touch so an agent can talk with you about the timing.
What does a bond cost?
Costs depend on the bond type, the amount and the surety’s review of the business. An agent can explain what goes into it for your situation.
Do I need a bond to bid on a project?
Some solicitations require bid bonds and others don’t. The bid documents say what’s required, so check them or send them to us.