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The Seven Families of Surety Bonds
Suretyship is an ancient concept and practice. Its basic function is to provide a performance guarantee as may be required to qualified persons or businesses offering a service. It is similar to and often competes with bank letters of credit. In the United States, surety bonds have been issued by corporations for over a century. Most corporate sureties have become the subsidiaries or departments of insurance companies as large capital requirements and risk measuring techniques are necessary to back the many and large bonding commitments made by sureties. The surety therefore needs to have strong financials. No one is likely to want the guarantee of a company with weak financials or a poor reputation. The surety company lends its good name and balance sheet backing the performance or honesty of a person or business. Fidelity Bonds- Theft is a leading cause of business failure. The only protections against this type of loss are good internal controls, regular outside audits and a fidelity or business services bond. Public Official Bonds- These guarantee taxpayers that elected and appointed officials will comply with the legal duties required of the position. Judicial or Court Bonds- Written for parties (plaintiffs and defendants) to lawsuits or other court actions in both civil and criminal cases. Fiduciary Bonds- A fiduciary is a person appointed by the court to handle the personal or business affairs of persons or commercial entities unable to do so themselves. License and Permit Bonds- Most businesses are required to apply for a permit or approval to transact business. In many cases there is a license or permit bond required as a condition of receiving permission or a license to conduct business. Contract Bonds (Bid, Payment and Performance Bonds)- These bonds mainly used in the construction industry, guarantee the price (Bid Bond), payment of subs and suppliers (Payment Bond) and the completion of the project (Performance Bond) to the owner. Miscellaneous Bonds and Federal Bonds- There as many types of surety bonding as there are categories of contracts, agreements, or situations where people may fail to perform as promised. Some examples include customs bonds, lost securities bonds, tax payment bonds, financial guarantee bonds, wine maker bonds- the list is endless. It has been noted there are over 10,000 different surety bonds required by government authorities, individuals and businesses. How are surety bonds obtained? Surety Companies use independent insurance agents who have a special expertise in the industry. Surety Advisors, LLC (www.suretybondservices.com) in Houston, Texas are bond agents with years of experience in providing some or all of the seven families of surety bonds mentioned in this article. Bond Agents are the link between the surety company and those who need bonds. Agents are granted a Power of Attorney which enables the agent to execute bonds on behalf of the surety. A Power of Attorney allows the agent to act as if the surety operated directly from the agent’s office. This requires considerable discretion on the part of the surety. Few agencies are granted this important but efficient authority. |
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IMPORTANT NOTE: While we specialize in Surety Bonds, this Website provides only a simplified description of bonds and is not a statement of contract. Wording may not apply in all states. For complete details of bonds and conditions, be sure to read the bond, including all endorsements, or riders, if applicable. Bonds CANNOT be bound, amended, or altered by leaving a message on, or relying upon, information in this Website or through E-Mail.
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