When one party invests in something that another party is responsible for, the first may want a guarantee. While standard guarantees may be suitable in many situations, large products and projects sometimes require extra assurance. Surety bonds are one way that Massachusetts businesses can provide that additional assurance.
Surety bonds are specialized products that insurance companies offer, even though the bonds aren’t actual insurance policies. Because these are so specialized, businesses that need surety bonds should work closely with an insurance agent who knows the bonds well.
Surety bonds can be used in many situations where a major product or project has to be guaranteed. A couple of common scenarios illustrate how these bonds can be useful.
Massachusetts auto dealerships are generally required by state law to maintain minimum bonds, usually in order to protect customers against fraud. Even though instances of fraud are rare, protection is important when consumers are making what will likely be their second-largest purchase ever.
Contractors may be asked to acquire bonds when working on large projects, especially projects for governments or major commercial clients. In these cases, the bonds are primarily used to provide the client with compensation if the project is never completed. They might also be used to pay workers for the labor that’s been performed.
Medical supply companies, liquor stores and other businesses may also need bonds for major sales or projects.
In the construction industry, contractors may need any of several different surety bond types:
When they’re needed, performance bonds and payment bonds are often purchased together.
Like most types of bonds, surety bonds normally have three parties involved:
In the event that something goes awry with a contract, the surety will usually pay the obligee a predetermined amount (up to the bond amount). The surety is likely to then pursue the obligor for the paid compensation.
Surety bond premiums are usually determined as a percentage of the bond amount. This results in most bonds being quite affordable, although major bonds for construction projects and similarly large needs can have higher premiums.
When surety bonds are needed, the associated premiums generally can’t be avoided. They’re often built into a project bid or business plan to account for the cost.
Although surety bonds are distinct products from normal insurance policies, bonds are commonly purchased through insurance companies. An insurance agent who specializes in these bonds can help businesses find a bond that meets their requirements. An agent who’s independent can show several requirement-meeting bonds from different companies, and thus help businesses choose the best one.
For help finding surety bonds in Massachusetts, contact the independent insurance agents at Garrity Insurance. Our agents can assist with various types of these bonds, and we have the expertise necessary to get your business set up with the perfect one for its needs.