Want to know it? What is a Surety Bond
By: Want To Know It
What is a Surety Bond?
A surety bond is a contract between 3 parties. The first party (the surety) enters into a contract on behalf of the second party (the obligee) to ensure that the third party (the principal) performs some contractual obligation. The surety agrees to fulfill the obligations owed by the principal if the principal is unable to perform them. The principal will usually be required to pay an annual premium to the surety to ensure that they will pay if the principal becomes unable to pay. This often happens if the principal declares bankruptcy.
Every surety bond has a ‘penal sum’. This is the maximum amount the surety is required to pay if the principal defaults. The premium the principal pays is calculated according to the penal sum. The annual surety premiums payed in the United States are approximately $3.5 billion.
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