A Basic Straightforward Guide To Understanding Surety Bonds

A Basic Straightforward Guide To Understanding Surety Bonds

If you are a contractor or a small business owner, you may be requested to provide a surety bond to back a contract or your performance. If you are new to the world of surety bonds Michigan it is important to understand what types of bonds are available and how they are used to protect either you or your client. There are several different classes of surety bonds. When you begin reviewing applications the technical terms may become extremely confusing to you. Understand what terms mean on the application and which type of surety bond you will need to secure depending on your needs.

When you are securing a surety bond you are promising to fulfill your contract with a separate contract secured as a promise to pay. There are three different parties listed on the bond. The obligee, defined as the party who is receiving the obligation, is generally classified as your client. The principal, defined as the primary party performing the duties listed on the contract, will business entity. The last party, the surety, is the insurance company assuring the obligee that the principal will perform the task or tasks listed on the contract.

Now that you have a better understand for the terms listed on surety bonds Michigan you will need to understand the different types of bonds available to individuals and businesses. Contract surety bonds are most commonly used in the construction industry. These type of bonds assure the project owner, typically referred to as the obligee, that the general contractor will follow the provisions specified in the written contract. There are several different subcategories of contract bonds. A bid bond will guarantee to obligee that the contractor will accept the contract if they receive the winning bid. A performance bond will assure performance of the contract. A maintenance bond will guarantee repairs will be performed for a specified period of time.

Several other types of commercial surety bonds do not assure a contract. License and permit bonds are needed for any professional requiring state licensing or permits. These bonds assure that the professional will adhere to licensing requirements when they engage in business activities. Court bonds are needed for individuals who are defending themselves against legal action. These bonds are specialty bonds and are generally requested to release individuals from jail or to assure a probate.

Although some individuals see surety bonds Michigan as an insurance contract they are not technically defined as insurance. If you have a need for any specific type of bond consult a surety bond agent who is experienced in the industry. You may have to undergo a credit check during the application process. Once you pay your premiums, you will be bonded and you can submit your bond to the obligee.

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