Types Of Bonds

There are many different types of bonds that can be obtained, but a surety bonds is a specific type of bond that involves three different parties. The first party is the principal ?an organization or person who is being secured against default. The second party is the oblige ? the person or organization that is due money or labor. The third party is the surety ?the person or organization that promises to pay a certain amount if the principal defaults. Surety bonds are used in a wide range of circumstances, such as anytime an individual or group is expected to perform something and further assistance is required to assure their compliance.

The principal enters into a contract with a surety, which may be an insurance organization or underwriter, promising that they will reimburse the surety if they default on their promise to the oblige. If default does occur, the surety gives the oblige the agreed upon amount of money. The principal in turn is legally required to reimburse the surety. Surety bonds include several types such as contract bonds, court bonds, license bonds, and bail bonds. Building or maintenance jobs may require a contract surety bond that stipulates a range of specifications, maximum cost of the project, and time completion. A court surety bond is required before a principal tries to file some types of claims or injunctions or tries to appeal a case in court. If a principal fails to acquire this then the court may require them to pay court costs and possibly a fine. In this case, surety obligates the principal to pay these costs if incurred before the principal uses the court's time. One of the most well known types of surety bonds is the bail bond. Most banks and insurance companies will not issue these. A bail bond promises the court that the principal will appear at the appointed court date. Failure to do so by the principal will result in the surety paying the court a fine and then collecting from the principal.

Bail bonds have a high default rate and are issued by only a handful of specialists, who usually end up charging high penalty and interest rates. Starting a new business or acquiring a new type of license for an existing business would designate seeking a license surety bond. The principal in this situation would be the business owner and the oblige is the state or local government issuing the license.

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