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The principal classes of commercial surety bonds include court, fiduciary, license, permit, miscellaneous, federal, and public officials.
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Corporate suretyship is closely associated with insurance, but its method of operation involves principles which resemble banking rather than insurance. There are three parties to the typical surety bond:
The principal, who is primarily responsible for the fulfillment of the obligation set forth in the bond and who must perform some act under certain conditions or, if the obligation is not met, respond in monetary damages.
The obligee, who is the beneficiary under the terms of the bond. Either the obligation set forth is fulfilled or the amount of the bond is available so that, in any case, the obligee is adequately protected.
The surety, who is the party joining with the principal for the purpose of guaranteeing to the obligee the fulfillment of the principal’s obligation.
In insurance, the insurer realizes that a certain percentage of the total premiums collected for the policy will have to be paid out as losses. In the case of a true surety bond, the premiums charged are “service fees.” It’s widely accepted that any portion of the premium charged will have to be used to pay losses. If the surety is required to make payment, they will look to the principal for reimbursement.
The majority of surety bonds are required by law or by regulations of our local, state, and national governments. The principal classes of commercial surety bonds include court, fiduciary, license, permit, miscellaneous, federal, and public officials.
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