What Can a Surety Bond Do for My Business?

Risk management and loss control are critical elements of your business’s financial stability and future potential. These practices can help mitigate monetary losses arising from accidents, errors and other unexpected incidents. Your company may need to take a multifaceted approach toward these measures by considering not only your own assets and interests but those of other parties with whom you conduct business. That’s where surety bonds may play critical roles.

What Are Surety Bonds?

These financial instruments are among the most common types of bonds and are typically sold by insurance companies. They can couple with business insurance policies to help establish and maintain financial security and peace of mind, allowing your company and employees to focus on their work. These measures may come in many varieties, including the following:

• Commercial bonds
• Contract bonds
• License and permit bonds
• Performance bonds
• Bid bonds
• Maintenance bonds
• Performance bonds

How Do They Work?

Although surety bonds may come in many forms, they typically serve the same general purpose of financially protecting parties that enter into business arrangements. For example, contractors and construction firms may retain bonds to reassure clients and developers that financial compensation is available if they cannot complete work as agreed.

These products can establish a legal agreement between the following parties:

• The principal, such as your business, is responsible for purchasing surety bonds.
• The obligee, such as a client or government entity, determines if their financial interests require bonds.
• The surety, such as an insurance company, underwrites and maintains the bonds.

If your business encounters difficulties and can’t complete work as promised, your surety bonds can provide financial relief, compensating your client while potentially limiting the need for legal action.

Why Are Bonds Important?

In addition to surety bonds’ financial protections, they may have further benefits for your company. Failing to fulfill your responsibilities without being able to compensate affected parties could devastate your business’s reputation, as both current and potential clients may see you as unreliable. Additionally, some prospects may require bonds before agreeing to work with your company in the first place.

We’re Here to Help

At Rich Toreson Insurance Agency Inc, we can help your business understand the benefits of surety bonds and secure its financial interests. Contact us today.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.