A surety bond is a type of contract that is made to make sure that the person purchasing the bond fulfills whatever is required of him in the contract. If the person purchasing the bond does not perform as expected, the person protected by the bond receives a financial reimbursement from the company issuing the bond. So basically, there are three parties involved in this type of contract and they are the company or person issuing the bond (surety), the person who is being protected by the bond (obligee) and the person who purchases the bond (principal).
The surety bond benefits the principal in several ways. The existence of a surety bond increases the number of clients that will trust the principal. Many clients like it better if a company or a person is a bonded professional. There are even those who will not transact at all unless that person is a bonded professional. In line with this, a person or company can use a surety as a marketing tool and advertise himself as a bonded professional in order to gain more clients.
The principal also benefits from a surety bond because, through this contract, he does not need to put up actual money as a guarantee for his product or service. When a principal buys a surety bond, he only pays a certain percentage of the amount being guaranteed. The percentage depends on the company issuing the bond. The percentage varies from one company to another.
It is important to remember that a surety bond is not by any means to escape from responsibility. The principal must never avoid obligations to pay claims because the contract is not a form of insurance at all. The bond simply reassures the other party that you will pay the expected amount or give them recourse in case you are unable to do so.
Obligees benefit the most from surety bonds because they have for themselves a form of protection. In many business deals or transactions, there are those parties that are unable to perform according to what is expected of them. They are either not able to deliver the product or are not able to perform the anticipated service. A surety bond ensures that if the principal falls short of the specifications of your deal, you as an obligee may pursue a claim against him.
The surety bond benefits the principal in several ways. The existence of a surety bond increases the number of clients that will trust the principal. Many clients like it better if a company or a person is a bonded professional. There are even those who will not transact at all unless that person is a bonded professional. In line with this, a person or company can use a surety as a marketing tool and advertise himself as a bonded professional in order to gain more clients.
The principal also benefits from a surety bond because, through this contract, he does not need to put up actual money as a guarantee for his product or service. When a principal buys a surety bond, he only pays a certain percentage of the amount being guaranteed. The percentage depends on the company issuing the bond. The percentage varies from one company to another.
It is important to remember that a surety bond is not by any means to escape from responsibility. The principal must never avoid obligations to pay claims because the contract is not a form of insurance at all. The bond simply reassures the other party that you will pay the expected amount or give them recourse in case you are unable to do so.
Obligees benefit the most from surety bonds because they have for themselves a form of protection. In many business deals or transactions, there are those parties that are unable to perform according to what is expected of them. They are either not able to deliver the product or are not able to perform the anticipated service. A surety bond ensures that if the principal falls short of the specifications of your deal, you as an obligee may pursue a claim against him.
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