A surety bond is simply an agreement between three parties: Principal, Surety and Obligee. The surety provides a financial guarantee to the obligee (i.e. government) that the principal (business owner) will fulfill their obligations. Therefore, a surety bond is a risk transfer mechanism.
A principal’s “obligations” could mean complying with state laws and regulations pertaining to a specific business license, or meeting the terms of a construction contract, depending on the type of the surety bond.
If the principal fails to meet their agreed upon obligations with the obligee, the surety may be required to resolve the dispute by paying a claim to the obligee. It is in this sense that a surety bond is similar to a form of credit extended to the principal by the surety.
Three parties involved in a surety guarantee:
- PRINCIPAL: Person required to post bond.
- OBLIGEE: Government entity or person requiring principal to be bonded.
- SURETY: Provides financial guarantee to obligee on behalf of principal.
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Auburn Insurance & Realty Co, Inc.
1119 Reservoir Ave
Cranston, RI 02910
Phone: (401) 943-3388
Fax: (401) 943-3437
We are licensed to write policies in Rhode Island & Massachusetts
Monday - Friday: 8:30 am to 4:30 pm
Saturday: By Appointment
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