If you’re a contractor, business owner, or licensed professional, chances are you’ve been asked to obtain a surety bond. Surety bonds are commonly required for licensing, permits, contracts, and court obligations — yet many people are unclear on what they actually are or how they work.
This guide breaks down surety bonds, how they differ from insurance, and why they are a critical requirement for many businesses.
What Is a Surety Bond?
A surety bond is a financial guarantee that ensures a business or individual will meet specific obligations required by law, contract, or regulation.
A surety bond involves three parties:
- Principal – the business or individual required to obtain the bond
- Obligee – the entity requiring the bond (state, municipality, court, or project owner)
- Surety – the bonding company that guarantees the obligation
If the principal fails to meet their obligation, the surety may step in to pay a valid claim — which the principal is then required to reimburse.
How Surety Bonds Differ From Insurance
A common misconception is that surety bonds function like insurance. They do not. Insurance policies protect the policyholder and transfer risk to the insurer.
Surety bonds protect the obligee and guarantee performance or compliance.
If a claim is paid on a surety bond, the bonded party is ultimately responsible for repayment. For this reason, surety bonds are often underwritten more like credit than traditional insurance.
Types of Surety Bonds
There are several common categories of surety bonds, depending on the requirement:
License and Permit Bonds
These bonds are required by states or municipalities to ensure compliance with laws and regulations. Common examples include contractor license bonds, auto dealer bonds, and notary bonds.
Contract Surety Bonds
Frequently used in construction, these include bid bonds, performance bonds, and payment bonds. They guarantee that a contractor will complete a project according to contract terms and pay subcontractors and suppliers.
Court Bonds
Required in legal proceedings, court bonds include appeal bonds, probate bonds, fiduciary bonds, and other judicial bonds.
Miscellaneous Surety Bonds
Custom bonds created for unique obligations, agreements, or regulatory requirements.
Why Are Surety Bonds Required?
Surety bonds protect:
- Consumers
- Project owners
- Government entities
- Courts and municipalities
They provide financial assurance that obligations will be met and offer a remedy if they are not. In many industries, a surety bond is a mandatory condition of doing business.
How Much Does a Surety Bond Cost?
Surety bond costs vary based on:
- Bond type and required amount
- Credit profile
- Business experience
- Industry and risk exposure
Many license and permit bonds are available for a low annual premium, while larger contract or court bonds may involve more detailed underwriting.
Who Needs a Surety Bond?
You may need a surety bond if you:
- Hold a professional or contractor license
- Operate a regulated business
- Bid on public or private projects
- Work in construction or specialty trades
- Are involved in a court or fiduciary role
If a government agency, court, or client requires a bond, it is typically non-negotiable.
Getting a Surety Bond Doesn’t Have to Be Complicated
With the right broker, many surety bonds can be issued quickly — often same day — with minimal paperwork. Even businesses with credit challenges may have options depending on the bond type.
Get a Surety Bond Quickly and Easily
If you need a surety bond or want help identifying the exact bond required, reach out to Landsman Insurance Services or click here to get covered in just a few clicks.