This type of insurance is generally known as surety bonds insurance. A bond is quite simply a three-way contract between the contractor (the principal), the owner (the obliges) and the bonds insurance company (the surety). The surety is typically always a company licensed by several various insurance departments to write bonds. In some cases, a private person can also act as a surety.
The contractor is referred to as the principal in bonds insurance because the contract is his or her primary responsibility. The bond is provided when the surety and principal promise that the contract will be performed according exactly to its terms. In essence, the surety solidifies the promise that if the contract is not performed, he or she will subsequently pay damages if the principal cannot.
The owner (or oblige) thus benefits from the promise described in bonds insurance. Both the principal and surety sign the bond, but the owner does not. However, the owner does have certain obligations under the bond, such as paying the contractor on the job. If the owner does not perform his or her own obligations under the contract, then neither the principal nor the surety is bound by the contract.
Although described as bonds insurance, bonds are not adequate insurance policies. Insurance policies such as general liability insurance, worker’s compensation, and other types of business insurance are required for all builder/development type companies. Bonds insurance merely provides an extra level of financial resource backing the contractor. It is recommended that you obtain bonds insurance in the event that a contractor cannot meet contractual obligations through his or her own assets.
Yeager Insurance and Financial Services offers many bonds for all types of situations. We are appointed with several bonding companies and, in most cases, can issue the bonds in our office fast.