A bond is a three party agreement that guarantees the fulfillment of a legal obligation. To simplify, a third party (surety) guarantees to a second Party (obligee or owner) the successful performance of the first party (the principal). Basically, a bond is an extension of credit. Surety company underwriters evaluate risk in ways much like a bank evaluates a loan application. They take into consideration the type of business operation, personal financial statements, credit reports, credit references, job references, company performance and expertise.
Surety bonds include numerous types of bonds such as court judicial, court fiduciary, public official, license and permit, and many miscellaneous bonds that include guarantees of financial performance. Some types of surety bonds are administrator bonds and guardianship bonds.
Fidelity bonds cover losses arising from employee dishonesty and Errors & Omissions liability insurance. Types of fidelity bonds include Janitorial Service bonds and Notary Public liability bonds.
Contract bonds guarantee the performance of obligations covered by a written agreement between two parties. The most common types include bid, performance and payment bonds.
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