11 Bond Types that Can Help You Grow Your Business

June 16, 2020

For independent agents and brokers eager to grow their book of business among new or existing customers, surety bonds provide a low maintenance revenue stream with high retention and low loss ratio.

Simply put, surety bonds protect financial interests and projects from contractual or legal failures. Here’s our round up of the most common types of bonds:

Construction and Contract Bonds

Required of contractors to protect against disruptions or financial loss due to a contractor's failure to complete a project or meet contract specifications. 

Bid bonds guarantee that contractors bidding on supply or construction projects will start a project on time if awarded the contract. Bidders provide bid bonds to project owners to protect against failures to honor the terms of the bid. If a bid failure occurs, the project owner can be compensated for a bid penalty. 

Performance bonds guarantee satisfactory completion of a project by a contractor. Sometimes, performance bonds also include payment bonds for labor and materials plus maintenance bond liability.

Payment bonds guarantee payment to certain laborers and suppliers for the labor and material used in the work performed under the contract.

Other Types of Bonds

License and Permit bonds are often required by state law, municipal ordinances or regulations. They are filed prior to the granting of a license for a particular type of work. License bonds guarantee payment to the obligee or, in some instances, to third parties for loss or damage resulting from violations by the licensee. Examples include contractor, electrician and plumber license bonds. 

Probate bonds guarantee that fiduciaries will fulfill their duties appropriately and ethically. Probate bonds are typically used for estates of deceased persons, individuals who are legally incompetent and minors. The bond guarantees an honest accounting and faithful performance of duties by administrators, executors, trustees, guardians and other fiduciaries. It also protects against embezzlement of estate funds, improper disbursements and losses on investments in some cases. Examples include administrator, executor, guardian and conservator bonds.

Plaintiff court bonds are needed for individuals involved in litigation court proceedings who are seeking a legal remedy, often involving non-payment of a debt owed by the defendant. The plaintiff bond guarantees payment of damages if the action is decided in favor of the defendant. Examples include plaintiff attachment, replevin, sequestration, and Indemnity to Sheriff.

Defendant court bonds guarantees payment of damages suffered if the action is decided in favor of the plaintiff. Examples include defendant bond, replevin bond and supersedeas bonds.

Public official bonds protect the interests of taxpayers and consumers to guarantee an elected or appointed public official will honestly and faithfully perform the duties of the elected or appointed office. The bonds also cover financial and property safekeeping. By law, bonded principals are responsible for the acts of their deputies, clerks, and other employees in their control. Examples are individual bonds that cover a single official or employee, position schedule bonds that cover specifically-named employees and public employee blanket bonds that cover all employees, unless specifically excluded.

Fidelity bonds indemnify employers for financial or property loss caused by the dishonesty of employees. Fidelity bonds are sometimes referred to as dishonest insurance. The bond form refers to the obligee as the insured and the coverage as insurance.

Business service bonds and dishonesty bonds provide fidelity coverage for subscribers to a service against a dishonest act by an employee. Business service bonds are used for janitorial services and dishonesty bonds are used for all other business types. 

Federal bonds are required by the Federal Government and guarantee compliance with Federal laws and regulations for government contracts. Many are financial guarantee bonds that guarantee payment of taxes, duties, fines and penalties. Examples include custom, excise immigrant, and packers and stockyards bonds.

Be sure to review your customer base and explore new opportunities to grow your business with the high retention and low maintenance of surety bonds.