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December 19, 2021

Business: Surety Bond

Adam Koch

A surety bond is a type of insurance policy that ensures business contractual obligations are met. They are legally binding contracts. If the party providing services fails to meet its obligations, the bond guarantees the party receiving the services will be paid any financial loss. 

Surety bonds involve three parties: the principal, the obligee, and the surety. The principal is the person or business that must fulfill its obligation. The obligee is the person or business that is receiving the service and needs a guarantee that the principal will provide their service. The surety is the issuer of the bond, who guarantees the commitment will be met or that the obligee will be compensated for any financial loss with a fixed amount of money if the principal fails to perform a contractual obligation. In order to make decisions about whether to underwrite the contractor or business, surety underwriters consider the character of the persons involved, their work history, credit score, and cash flow.

The state of Texas requires surety bonds for certain types of professional licenses such as contractors, pipefitters, and electricians. Surety bonds are also necessary for mortgage brokers, utilities, agricultural businesses, travel agents, liquor stores, and lottery-ticket sellers and notaries among others. These bonds also protect the public interest by requiring the principal to conform to codes and regulations established by the government. 

As an obligee—a provider of the service—your obligation requires the smooth and efficient managing of your business and the guarantee of great results. At Koch Insurance Group, we specialize in writing surety bond agreements that give assurance to the principal—the receiver of your services—that you will indeed uphold all your obligations.

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