Don't let it get out of control. Surety Claim investigation
Don’t let it get out of control. Managing Surety Claim investigation.
The sun is finally out and shining, indicating that summer is just around the corner. Your friends and family want to celebrate and go to your new house to have a barbeque in your backyard.
But wait! You don’t have a deck built yet, and the private construction company that you hired suddenly stopped contacting you back. How do you prevent this and ensure that they get their work done?
What is a surety bond and what does it involve?
A surety bond involves three key parties, namely the principal, the obligee and the surety. The principal is the individual or organization seeking financial aid (debt) from the obligee (lender). The obligee, being skeptical as to whether the principal shall repay the debt, asks them to be presented with the surety (guarantee) to stand in for the principal (borrower) if they cannot repay the debt. This design of agreement to all the three parties is the surety bonding them.
How do surety bonds work?
Surety bonds work to ensure that the lender does not suffer the risk of losing the finances they lend out. The borrower has also established a cushioned landing in case a repayment claim finds them unable to pay. A surety bond will generally be affected if the borrower (principal) fails or refuses to pay their debt. However, if the borrower settles the debt to the last penny, the surety bond is not affected.
Examples of surety bonds
- Performance bond: This is granted from an insurance company that guarantees a contractor offering their services to the buyers. The buyer will be compensated if the contractor fails to deliver successfully what was expected of them.
- Payment bond: This bond guarantees that the contractor shall receive their dues after completing their project.
- Court bonds: The court requires an individual to obtain these bonds before the court proceeds any further.
Although surety bonds cannot completely replace your business insurance, it is similar to insurance because they both provide you protection. It is best to have both surety bonds and insurance for your business to ensure you are safe.