An Easy Guide to Surety Bond Terminology | Infographic

guide to surety bond terminology

Have you ever wondered about the differences between the various technical terms used in the surety bond industry? Here is our easy guide to surety bond terminology so you can understand the ins and outs of what’s being said. 

A guide to surety bond terminology

Share this Image On Your Site

 

Administrator: Person with the legal right to manage an estate of a decedent or the affairs of a company

Alcohol bond (liquor tax bond): Guarantees that sellers of alcohol will pay all fees and taxes for the manufacturing, sale, or storage of alcoholic beverages

 

Applications: Written form completed by a bond applicant which collects information to underwrite a bond

 

Attachment: Legal seizure of property in dispute

 

Auto dealer bond: Required in most states to own a car dealership

 

Balance sheet: Financial statement listing assets, liabilities, and net worth

 

Bank depository bonds: Guarantee deposit of public funds

 

Bankruptcy trustee bonds: Guarantee that bonded trustees will perform duties according to court rulings on behalf of beneficiaries

 

Bid bonds: Guarantee contractors submit bonds in good faith and enter into contracts at bidded amounts

 

Blanket bonds: Guarantee honesty of employees

 

Blanket public official bonds: Guarantee honesty of public employees

 

Bond form: Legal document that states the purpose, penalty, term, and conditions of the bond, and specifies the parties to the agreement

 

Bond penalty: Amount surety is liable for

 

Cancellation clause: Allows a surety to cancel future liability

 

Capacity: Maximum amount of bond a surety can write, found in federal treasury listing

 

Collateral: Valuables or money used to mitigate the risk to a surety

 

Commercial bonds: Required by businesses (not contractors) to guarantee completion of service

 

Conservator: Designated person, official, or entity who protects the interests of an incompetent or minor

 

Contract bonds: Guarantees the performance of contractual obligations according to its terms

 

Court bonds: Required in some legal cases

 

Damages: Compensation sought via claim

 

Default: Violation of a surety bond’s terms due to failure to perform

 

Errors and omissions insurance: Covers damages from mistakes and negligence

 

Executor: Person appointed to execute will

 

Fidelity bonds: Guarantee employee honesty

 

Fiduciary: Court-appointed person or entity who handles someone’s affairs

 

Fiduciary bond (probate bond): Guarantees ethical behavior by fiduciaries

 

Freight broker bond: Pre-licensing requirement for freight brokers

 

Indemnity agreement: Promise to repay surety

 

License and permit bonds: Required to obtain a license or permit to safeguard the public

 

Maintenance bonds: Protect against poor workmanship or defective materials

 

Miller Act (1935): Requires contractors on federal projects to obtain a performance bond and a payment bond; “Little Miller Acts” are similar state-level requirements

 

Notary public bonds: Protect the public against losses from improper actions of a notary public

 

Obligee: The beneficiary of the bond or party a bond protects from loss

 

Payment bonds: Guarantee payment, usually from contractors to sub-contractors and suppliers

 

Performance bonds: Guarantee performance of a contract according to its terms

 

Premium: Amount paid for a bond

 

Principal: Person or entity whose obligations a bond guarantees

 

Reclamation bond: Guarantees an entity will restore land that it has mined or altered to its original condition

 

Sales tax bond: Guarantees businesses will pay any outstanding taxes and file tax information when due

 

Supply bond: Covers supplier contract

 

Surety: Person or entity who is legally responsible for contracts, delinquency, debt, or liability of others

 

Surety bond: Three-party agreement between principal, obligee, and surety which guarantees the principal will keep their contractual obligations to the obligee

 

Trustee: Person or entity appointed to manage affairs of a company including assets and debts

 

Underwriting: Investigation process of qualifying for a bond