Surety Bonds

A surety bond is a promise by a guarantor to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet an obligation. Typically a licensing agency or entity seeking contract bids will require a surety bond from the license or bid applicant. Surety bonds are different from insurance but are easily confused with insurance.

Other situations where a bond might be required are to guarantee payment for taxes or utility costs; or to guarantee your workmanship. Similarly, administrators or executors may be required to post a bond to guarantee their performance while distributing assets in estate situations. Most states require a public notary to post a bond. Notary bonds insure against unethical behavior or error on the part of a notary public during the course of business.

A fidelity bond is another type of bond, typically required to protect the assets in an employee benefit plan from misuse or misappropriation by the plan fiduciaries. This is often called an ERISA bond. The person (fiduciary) who oversees the plan usually needs a bond for compliance with the 1974 Employee Retirement Income Security Act (ERISA).