How Surety Bonds Work

A surety bond is a form of insurance that one person or organization pays for it, while another receives the benefit.

Imagine a contractor building a new office building for a state agency. The agency wants a guarantee that the taxpayer won’t lose the money invested if the contractor fails to deliver as promised.

The answer is a surety bond. The contractor pays a premium to an insurer to purchase the surety bond. The insurer then pays the necessary compensation to the agency if the contractor fails to deliver. The big difference between this and ordinary insurance is that the insurer can and will go after the contractor to get this money back. The point of the surety bond is that the agency gets the assurance that it won’t have to chase after the money itself.

Learn more