Insurance takes many different forms to provide several benefits depending on the situation. At The Johnsons Insurance Agency, we understand the importance of coverage and the need for safeguards to guarantee protection. Surety bonds are no exception as they are often found to be incredibly helpful in both ensuring quality work from professionals while also protecting them.
What is a Surety Bond?
In its most simplified version, a surety bond is a type of agreement between at least three parties:
- Obligee: The party requiring the bond and benefits from it.
- Principal: The party responsible for the contractual obligation backed by the bond.
- Surety: The party who assures the obligee that the principal will follow through.
When a principal is required to get a bond by an obligee, they are required to abide by all terms and requirements of the bond. Failure to do so results in the surety paying the obligee for the letdown of the principal in their duties. The principal must sign an indemnity agreement before the deal which relinquishes their personal and corporate assets to reimburse the surety in the event of the surety having to pay the obligee. The possibility of this happening is an incentive for the principal to meet all contractual obligations.
In the Real World
Typically, an obligee will be government agencies trying to regulate industries who are the principals. This regulation is in place to protect the consumer from loss of capital. An obligee can also be anyone who contracts a business and wants to ensure the work meets their specifications. The bond allows the obligee to invest while feeling safe that they will not face financial ruin with the project.
Beneficial to All
Surety bonds also act in the interest of the principal by protecting their assets. The insurance agency behind the bond is guaranteeing financial backing and making the promise of their work more desirable to the obligee due to the contractual obligation of completion. Without the surety, the principal would only have their liquid assets to put up as collateral which can be risky. Surety bonds provide a safe alternative for all parties involved to pledge the predetermined quality of work to the obligee while also incentivizing the principal to meet that quality.
Protect Your Assets
As a principal, there is no need to risk all your liquid cash, and as an obligee, you want peace of mind in knowing that your investment will come to fruition. Through the aid of surety bonds, all parties can be satisfied with little risk involved. With over 40 years of experience, The Johnsons Insurance Agency aims to provide for our customers and offer excellent customer service to build lasting connections. Don’t hesitate to call us at 305-289-0213 for further information and you can request a quote here.