Understanding Contract Fulfillment Guarantees
Many organizations require a form of guarantee of work and payment when hiring different professionals like contractors, licensed operations, and suppliers. A surety bond becomes a contract for this guarantee, with a third part company offering the financial support for the contract.
How Do Bonds Work?
As the information at https://www.axisins.com/ explains, there are three parties involved in a bond transaction. The principal is the service provider who pays the bond premium to a surety, who will then provide the financial guarantee to the obligee (person requesting the bond). If the principal fails to deliver or comply with any of the terms of the contract, a claim can be opened for settlement. The surety will then investigate and verify the legitimacy of the claim, settling within the bond amount when the situation warrants. The principal is required to pay the surety for the costs of the claim.
Is a Surety Bond Insurance?
Though some consider surety bonds a form of insurance, this a loose a comparison. A bond if different because it does not cover any of the expenses that may stem from a claim. The bond is simply a line of credit that can pay the initial costs of the claim, but you, as the principal, as still responsible for paying the bill for both the premium and the bond payouts.