During the course of business, your company may eventually encounter unfortunate situations in which it’s unable to meet goals or fulfill obligations. While such times are not ideal, they are unfortunately inevitable, necessitating appropriate planning. By having suitable risk management and loss control measures in place before such a mishap, your business can be equipped to handle the situation with minimal losses. That’s where surety bonds become an important topic.
What Are Surety Bonds?
Surety bonds are among the most common types of bonds purchased from insurance companies as a way to fortify your business’s loss control measures and, by extension, financial stability. These products can play an integral role in offsetting fiscal losses and avoiding legal disputes should your business come up short in its services or operations. Surety bonds may come in many forms, including the following:
How Do These Bonds Work?
Surety bonds typically establish a legal agreement between your business, its client and a third party, usually an insurance company. This relationship generally functions as follows:
- The principal, such as your business, is responsible for purchasing surety bonds.
- The obligee, such as your customer, determines if surety bonds are necessary to secure their own interests.
- The surety, such as an insurance company, underwrites and maintains bonds.
In the event that the principal proves incapable of delivering as promised, the obligee can be compensated through surety bonds without a need for litigation.
Why Are These Measures Needed?
Suitable surety bonds can make all the difference in the aftermath of unexpected mishaps or unforeseen circumstances. When faced with the unfortunate reality that your business will not be able to live up to its word, these bonds may offset financial losses that could have otherwise proven catastrophic. Additionally, avoiding being drawn into legal proceedings could spare your company’s reputation and salvage future opportunities. Furthermore, many clients may require you to retain surety bonds before even allowing you to bid on jobs.
We’re Here to Help
Contact Consoles Insurance Agency today to learn more about surety bonds and ensure your business has appropriate loss control measures in place.
This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.