What are surety bonds?
When one party is substantially dependent upon another party, the first party may want financial assurance that the overseeing person/business will fulfill their obligations. This assurance may come in the form of a surety bond, which both individuals and businesses in Massachusetts might purchase.
Sometimes failing to meet obligations results in substantial financial costs for another party. Surety bonds may provide the other party with compensation should obligations not be met.
What Massachusetts residents and businesses might purchase surety bonds?
Surety bonds can provide financial reassurance in many different situations. Massachusetts contractors, auto dealers, fiduciaries and custodians are some of the parties that might need these bonds.
There are many different types of bonds that parties might purchase, depending on what reassurances they have to provide.
What types of bonds do contractors purchase?
Bonds are often used in the construction industry when contractors sign on to complete a major project. In these situations, the bonds might provide the customer paying for the project with financial compensation if the contractor fails to complete construction.
A contractor might purchase several different types of bonds throughout the various phases of a construction project:
- Bid Bonds: May guarantee a contractor will commit to a project if their bid is accepted
- Performance Bonds: May guarantee a contractor will complete the project according to the project’s contract
- Payment Bonds: May guarantee a contractor will pay their workers the wages promised
- Maintenance Bonds: May guarantee a contractor will remedy detects found after completion
Many businesses and government agencies that have large construction projects will only consider contractors who are willing to purchase these bonds.
What types of bonds do auto dealers purchase?
Auto dealerships are generally required by Massachusetts state law to carry minimum bond amounts. This is primarily to protect customers against fraud, which is rare but has high costs given the prices of vehicles.
An insurance agent who specializes in bonds can help auto dealers, as well as other parties, procure the bonds that are right for them.
What types of bonds do individuals purchase?
Individual residents normally purchase bonds only if they have a legal obligation to another party, and most often the obligation is related to properly managing finances. These bonds are commonly called probate bonds, and there are several different types:
- Executor Bonds: May guarantee the proper management of a deceased’s estate if they had a will
- Administrator Bonds: May guarantee the proper management of a deceased’s estate if they didn’t have a will
- Guardianship Bonds: May guarantee the proper management of a legally incompetent adult or minor’s estate
- Conservatorship Bonds: May guarantee the proper management of a ward’s estate
Again, a knowledgeable insurance agent can assist with these and other bonds if any are needed.
Who are the parties that surety bonds apply to?
Most of these bonds have up to three parties involved. The official terms for the various parties are:
- Surety: The party providing financial compensation (e.g. insurance company)
- Obligor: The party with an obligation to meet (e.g. contractor, auto dealer, fiduciary)
- Obligee: The party that something is done for (e.g. customer, estate owner)
In most cases, the surety pays the obligee if the obligor fails to meet their responsibilities.
How can businesses and individuals get surety bonds?
Although surety bonds are technically different than insurance policies, they’re commonly offered by insurance companies. For assistance with bonds, contact the independent insurance agents at Flavin & Flavin Insurance. Our agents can help you compare bond options from several different Massachusetts insurers, and we have the expertise necessary to help you select whichever option best suits your needs.