Licensed, Bonded, and Insured... What does "Bonded" mean??

You may have heard the phrase “licensed, bonded, and insured” in a business advertisement, especially for a contractor. The ‘licensed’ and ‘insured’ part—those make sense right off the bat for most of us. But do you know what ‘bonded’ means? There are many types of bonds that this could be referring to, but one very important one is called a “Surety Bond”.

What is a Surety Bond?

With a surety bond, there are three parties: the principal, the obligee, and the surety.

The principal: the person who needs the bond

The obligee: the person who is protected by the bond

The surety: the one who provides the bond (and protection)

The obligee is often a government or public entity of some sort. Because they are public entities, not only is quality of the product important, but they need to protect the taxpayer dollars that are going into the project. So, they need assurance of some sort that the project will get done, and without causing more financial burden than the project expects. The contractor or company they hire can—and is often required to—buy a surety bond as a way to make that promise to the obligee that they, the principle, will be liable for debt, default, or failure of another.

The surety comes into play if the obligee files a claim about the principal not fulfilling the contractual obligations. If the claim is found valid, the surety will provide the financial or performative support necessary to fulfill the contract in place of the principal. But the principal does not get away scot free—they are then held responsible for recompensating the surety.

So, the surety bond is like a parent watching over their problem child to make sure they play nice. If they don’t play nice, the parent will step in and smooth things over, and then the child will have to deal with the consequences of their parent getting involved.

Who needs a Surety Bond and how much do they cost?

As was mentioned before, those working for government or public entities (one example being schools) will be the ones most likely to need surety bonds. Surety bonds are often required by law, by court, or by contract, and can be needed to advance processes (such as finalizing a contract), or to get professional or business licenses. Surety bonds are also a very good way to establish trust between the principal and the obligee, as well as between the principal and the public.

The cost of surety bonds is usually a small percentage of the bond and will be individualized to the principal. The individualization is based on the size and type of bond, the state where the bond will be issued, and the principal’s credit score. If you are in search for a surety bond, you can contact Town& Country Insurance for a quote!

Surety Bonds are a good thing!

It may seem like an extra hassle and expense, but surety bonds are beneficial for all parties involved. It builds trust, insures quality work, and provides relief ifit is necessary for a ‘parent’ to step in.