Put guarantees in place to ensure a project is completed or certain regulations are followed.
Surety bonds aren’t insurance per se, but they are used as an insurance policy to ensure a company hired to do a job meets its contractual obligations. Essentially, surety bonds are defined as legally binding contracts that help ensure that the terms of a business agreement are fulfilled and that the party paying for the work is protected.
Different from standard contracts, surety bonds involve a third party known as a surety—often an insurance company—that provides coverage for losses incurred by the entity paying for the work (the obligee) if the business performing the work (the principal) fails to complete a project, severs the contract or falls short of performance obligations. Premiums for surety bonds are paid by the principal.
Since 1955, the experienced team of agents at Nixon & Lindstrom have helped businesses throughout Springfield and Southwest Missouri purchase surety bonds. As a result, we can help you purchase bonds that fit well with your operation and will signal to clients that your business is credible and reliable. Contact an agent now to get a quote.
Certain municipal regulations and laws may require your business, whether its large or small, to be bonded when executing government contracts. Even if surety bonds aren’t legally required, businesses that perform contractual work for clients may employ them as a matter of policy.
If your business is performing significant work for a client, buying a surety bond could help allay any fears they might have about losing money if the project doesn’t go as planned.
There’s more than one type of surety bond, but commercial and contract surety bonds are the most common. Here’s a closer look at the different kinds of surety bonds your large or small business might need:
Commercial surety bonds – Municipalities and other governmental entities require certain licensed businesses to buy commercial surety bonds in the interest of protecting consumers. In addition to being licensed in their respective field, bonded companies must adhere to all pertinent codes and ordinances. Businesses with commercial surety bonds might include automobile dealers, lottery-ticket sellers, liquor stores, travel agencies and utility providers.
Contract surety bonds – These bonds play an important role in construction contracts and help protect the project owner’s interests. A contract surety bond guarantees a construction contractor will properly complete the contracted work and pay premiums to the surety. If the contract terms aren’t met, the owner can file a claim to recover losses. Contract bonds may cover bidding, performance, maintenance and payment of suppliers and subcontractors.
Fidelity surety bonds – Fidelity surety bonds are a mechanism for businesses to protect themselves against employee theft, fraud and malfeasance. IT companies and operations dealing with large amounts of cash or sensitive client data should consider these bonds as a low-cost option to safeguard themselves and their customers.
Court surety bonds – During court proceedings, you may be required to get surety bonds to protect companies or individuals. Court surety bonds may be used to guarantee payment of court costs during appeals, estate administrators and plaintiffs or defendants who are awarded damages.
Surety bond premiums are influenced by the bond value, as well as industry-specific risk factors, credit rating and bond claims history. Like similar products, higher-risk bonds will translate to higher premiums. On average, though, the cost to be bonded is typically less than 15% of the total bond amount.
Are you looking to get a surety bond for your business? If so, partner with an industry leader by bonding through Nixon & Lindstrom Insurance. As an experienced independent insurance company that’s helped hundreds of businesses throughout Springfield and Southwest Missouri, we’re able to provide surety bond options that meet your budget. Request a review of your bonding needs today, and one of our agents will help you find the optimal surety fit for your operation.