There is always a chance that your business might suffer a loss due to natural calamities, market instability, or human error. But it’s a fact that businesses also suffer some form of loss due to their operational errors. Many insurance companies cover the loss as a result of natural calamity, but what about losses caused by human errors or disagreements? The answer to this is a Surety bond. Surety bonds are financial instruments that ensure payment to a contractor if the other party fails to do so. It’s a type of insurance except for a contract that secures a business against partner disagreement. You can learn more about the surety program from Talisman Casualty or go through the following aspects to better understand its purpose.
Purpose
Surety bonds main purpose is to protect a business from a financial loss as a result of a disagreement between parties. This definition is a small part of what a surety bond does. A surety bond protects a business from the damage caused by human errors, be it contractual or from an employee. Moreover, it protects the partners and ensures that a business pays off litigation fees if there is a case against it.
Types of Surety Bond
Surety bonds have several types, but the following are the main and the most in use:
Contract Bonds:
As the name suggests, these bonds are between parties that work on a contract basis. The bond is used to ensure that a contractor fulfills all his obligations and delivers the project on time. It also ensures that the contractor pays off all the parties related to the project. This type of bond is mainly used in the construction business and is the most common one.
Commercial Bonds:
These bonds usually work between government agencies and public members to ensure their interest when a business starts in a particular sector. It is for all the new businesses and the ones with licenses as well. They protect public interests that might be compromised when such businesses start their operation.
Fidelity Bonds:
These types of bonds are rare but beneficial. It is a bond underwritten for an employee by the employer to protect the business from any fraudulent activity. The bond is mostly taken out on employees working in the finance department and protects the business from any misadventure.
Court Bonds:
As the name indicates, this type of bond covers a business against litigation fees or expenses incurred due to the loss of a case. This bond is useful for businesses with a number of cases in the courts and helps cover up all the finances.
As evident from the above discussion, surety bonds are the kind of instruments that can protect a business from almost any type of foreseen and unforeseen disasters. High-risk businesses like financial firms and construction firms should always look into surety bonds to ensure their interests. Bonds ensure competitiveness and reliability in a business.
