What is an Insurance Bond?

An insurance bond ensures contract completion in the event of contractor default and typically required by project owners when seeking a contractor to fulfill a contract.

The contractor obtains a bond so the insurance company is obligated to compensate the project owner for the financial loss incurred if the work is not completed.

Typical Insurance Bond Types

Although there are many types of insurance bonds, the four most common types needed by business owners are:

• Bid Bond - Ensures the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract.

• Payment Bond - Ensures suppliers and subcontractors are paid for work performed under the contract.

• Performance Bond - Ensures the contract will be completed in accordance with the terms and conditions of the contract.

• Ancillary Bond - Ensures requirements integral to the contract, but not directly performance related.

What is a Surety Bond?

A surety bond is a legal contract between three parties that guarantees one party will perform their obligations to another party:

• Surety: The insurance company that guarantees the other party's performance

• Principal: The party that is guaranteed to perform

• Obligee: The third party that receives the guarantee

Examples of Surety Bonds

Includes bid or proposal bonds, performance bonds, payment or labor and material bonds, maintenance bonds and supply bonds. These bonds are required by state or federal law for most public construction projects or by a private developer.

Contact us to learn more about the right insurance bond for you.