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What Are Surety Bonds?

A surety bond guarantees that your business meets a specific obligation to a customer, contracting party or government agency. If a contract, license or permit requires one, get its exact form and amount; a bond is not insurance for your own losses.

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What Do Surety Bonds Cover?

A surety bond involves three parties: for a city construction job, the contractor is the principal, the city is the obligee, and the surety guarantees the specified obligation if the contractor defaults. 1,2

Not a Substitute for Your Own Insurance

A surety bond protects the customer or other obligee if the business does not meet the bonded obligation; it is not a substitute for the business’s own liability or property insurance. 2,7,1

Dishonest Acts Versus a Guaranteed Obligation

A fidelity discussion concerns loss from dishonest acts; a surety bond concerns a guarantee of an obligation to another party. 1

Who Needs Surety Bonds?

You may need a surety bond when a customer, contract, license or permit requires one. Start by getting the exact bond form and amount the requirement specifies. 2,7,5

Surety Bonds Coverage Examples

What happened

A Project Owner Requires a Bond

A customer asks for a bond before your construction project can begin.

How coverage may help

A performance bond guarantees the completion obligation; a payment bond concerns suppliers and subcontractors. The required contract and bond form establish which guarantee the customer needs. 1,2,3,5,7

What happened

A License Application Calls for a Bond

Your business license application requires a surety bond.

How coverage may help

A commercial surety bond can guarantee the specified legal or regulatory obligation. It protects the obligee and doesn't replace your own liability insurance. 1,2,5,6,7

How Do You Compare Surety Bonds Coverage and Costs?

Contract Bonds and Commercial Bonds

Contract bonds guarantee that the terms of a specific contract will be fulfilled; commercial bonds address legal or regulatory obligations such as licenses, and they are a different product discussion. 2,5,6

Bid, Performance and Payment

Bid, performance and payment bonds serve different contract needs: the bid, completing the work, and paying suppliers and subcontractors. 2,3,5 Identify who requires the bond, the exact obligation, and whether the need is a license or permit, a bid, performance of a job, payment of subcontractors, or another commercial bond form. 2,5,7
Hypothetical needWhat to identify
Auto-dealer licenseThe regulator and the license or permit bond form
School-renovation bidThe owner and the bid-bond requirement
Awarded job, subcontractors to be paidThe payment-bond requirement
Completing the awarded workThe performance-bond requirement

What Are the Bond Requirements for Federal Construction?

For a federal construction project, check the solicitation and applicable bonding requirements with the contracting officer before arranging performance or payment bonds. 4

How Do Surety Bonds Compare With Related Coverage?

Letters of Credit and Other Security

If a contract permits a letter of credit or a surety bond, compare those options with the obligee’s stated requirements rather than assuming they are interchangeable. 5

What Do You Need for Surety Bonds Quotes?

Sureties evaluate the business’s credit, capacity and character; prepare financial information and a description of the work or license to be bonded. 2 Prepare the obligee’s required bond form and amount, the contract or license documents, and financial information for the surety’s evaluation. 2,7,5

Obligee Forms, Job Details and Financials

PrepareAsk the broker
Obligee and obligationWhich license, bid, performance, payment or other bond form is required?
Required form and amountDoes the proposed bond match the obligee’s form and amount?
Contract or license documentsWhat documents does the surety need to evaluate the obligation?
Financial informationWhat financial records support the surety’s review?
2,7,5 2 2,5,7

Surety Bonds: Key Terms in Plain English

Principal and Obligee

The principal owes the obligation; the obligee is the party to whom it is owed. The surety guarantees that obligation if the principal defaults. 1,2

Performance and Payment Bonds

Different guarantees for completing work and paying suppliers or subcontractors. 2,3,5

Frequently Asked Questions About Surety Bonds

Who Does a Surety Bond Protect?

The customer or other obligee to whom the obligation is owed. It doesn't replace the business's own liability or property insurance. 2,7,1

Are Performance and Payment Bonds the Same?

No. A performance bond concerns completing the work; a payment bond concerns paying suppliers and subcontractors. 2,3,5

How Is a Commercial Surety Bond Different From a Contract Bond?

A contract bond guarantees obligations under a particular contract. A commercial bond concerns a legal or regulatory obligation, such as a licensing requirement. Match the bond to the obligation the customer or regulator requires. 2,5,6 2,5,7

What Does a Surety Review Before Issuing a Bond?

Sureties evaluate credit, capacity and character. Prepare financial information and a description of the work or license, along with the required bond form, amount and related documents. 2 2,7,5

Questions to Resolve Before Buying

Choose the named state in the coverage-by-state section below to open its buying guide.

What Coverage Is Related to Surety Bonds?

  • What Are Fidelity Bonds?

    Fidelity coverage can reimburse certain losses when employees steal money or property they handle. If employees manage company funds, customer property or benefit-plan assets, identify each owner and compare the required protection for each interest.

  • What Is General Liability Insurance?

    General liability can protect your business when a customer or visitor claims you caused injury or damaged their property. It suits businesses serving customers or working on their premises; your own building, tools and stock need property coverage.

  • What Is Builders Risk Insurance?

    Builders risk protects the project you are building, including materials meant for it, against physical loss until construction ends. The gaps that cost owners money are materials in storage or transit, the existing building in a renovation, and coverage ending when you occupy early.

Surety Bonds Guides by State

Which Insurance Providers Offer Surety Bonds?

  • Aon

    Aon markets Commercial Surety globally and says availability depends on jurisdiction; the page does not establish U.S. placement availability.

  • Berkshire Hathaway Specialty Insurance

    BHSI’s U.S. Surety page lists performance, payment, advance-payment, maintenance, supply and warranty bonds for contractor and construction-supplier accounts. Bond obligations depend on the bond form, principal, obligee and jurisdiction; this catalogue listing does not establish bond approval or terms.

  • Chubb

    Chubb offers surety bonds.

  • CNA

  • Coverdash

    Coverdash lists surety bonds in its Excess & Specialty catalog with a quote route.

  • Embroker

    Embroker arranges construction-contract and license or permit surety bonds.

  • Gallagher

    Gallagher arranges surety bonds.

  • Harper

    Harper arranges license, permit and contract surety bonds.

  • Heffernan Insurance Brokers

    Heffernan arranges surety bonds, including through a linked online bond portal.

  • HUB International

    HUB International arranges surety bonds.

  • Insureon

    Insureon markets Small Business Surety Bonds; description does not establish insurer, policy terms, or individual availability.

  • Liberty Mutual

    A group brand spanning personal and commercial insurance businesses; its business unit pages describe small-commercial cover for small businesses and commercial, specialty, surety, and reinsurance solutions for mid-size and large businesses.

  • Lockton

    Lockton arranges surety bonds.

  • Markel Insurance

    Markel Surety bonds

  • Marsh

    Marsh McLennan Agency (MMA), a Marsh business, arranges contract and commercial surety bonds.

  • Marsh McLennan Agency

    Business insurance and employee health and benefits, with retirement, wealth, and private-client services also listed for the United States and Canada.

  • Mylo

    Mylo compares commercial surety-bond quotes for license or permit obligations.

  • Nationwide

    Nationwide markets commercial surety bonds. A bond is a contractual guarantee and is not interchangeable with an insurance policy.

  • Newfront

    Newfront arranges contract and commercial surety bonds.

  • Relm Insurance

    Relm lists contract surety for placement through brokers.

  • StartupInsurance.ai

    StartupInsurance.ai arranges surety bonds for startups.

  • TechInsurance

    TechInsurance arranges surety bonds for small businesses.

  • The Baldwin Group

    Dedicated surety practice describes bond advisory/placement across contract, commercial and subdivision contexts.

  • Travelers

    Travelers offers surety bonds.

  • USI Insurance Services

    USI arranges contract, commercial and international surety bonds.

  • WTW

    WTW’s 2024 annual report describes a global bond-placement team. This is a dated global group capability, not evidence of current U.S. placement terms or eligibility.

  • Zurich U.S.

    Zurich markets construction and corporate surety bonds.

Updated .

Spot, a product of Tools for Enlightenment, publishes this research and works in the commercial insurance market. Editorial policy. To suggest a correction, contact Spot with the page URL and supporting source.

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