Surety is not insurance. The premium paid for a surety bond is for the guarantee itself and is not designed to cover potential losses. This is similar to the interest paid for a bank loan, where the interest is simply a fee for borrowing the money rather than providing coverage for loan defaults.
For example, auto dealer surety bonds are designed to provide a guarantee that an auto dealer or used car dealer will operate according to the laws and regulations of that state. They do not provide insurance to cover damages caused by any malpractice.
Therefore, in virtually all cases, the principal on a surety bond will be expected to sign an indemnity agreement stating the surety bond company will be repaid if it pays out a claim to the obligee on the principal’s behalf. This indemnity agreement may either be an unsecured signature guarantee or may be collateralized up to 100% with some form of security, such as a cashiers check, CD assignment or bank letter of credit. Regardless of whether or not collateral is taken, most privately owned companies will have to provide company indemnity as well as the personal indemnity of the business owners.
Alpha Surety is a nationwide surety bond broker offering simple, fast solutions for all types of surety bonding in all 50 states. We offer our customers extremely competitive pricing with multiple national carriers as well as world class support. For a free consultation about your surety bonding needs, please call 510-435-8425 or contact us. Or, to apply for a free quote, please complete our surety bond application.