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.
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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