Comprehending Pennsylvania Surety Bonds

There are four types of Pennsylvania surety bonds that contractors and others working in certain industries are generally required to have when conducting business: License bonds, which are needed for many professions such as auto dealers and mortgage brokers to operate legally; contract bonds for public construction projects; court bonds required by the courts for various purposes, and fidelity bonds that cover policyholders for losses that they incur as a result of fraudulent acts by specified individuals.

The state requires license and permit bonds in order to obtain and file licenses/permits for many different professions. Contract bonds, such as bid and performance bonds, are needed to work on public construction jobs. However, rather than being a state requirement, these bonds are usually required by cities or municipalities. The courts only require court bonds if you need to appeal a court decision, wish to become a legal guardian of a minor, or operate as a fiduciary of an estate.

Are surety bonds insurance?

Not exactly. Surety bonds are considered by many to be a specialty form of insurance, and the Surety is almost always an insurance company. Bonds are very different than insurance, however because the beneficiary is a third party (Obligee). As long as the Principal does what they’ve promised, the Surety will not be called upon to perform or pay.

The Principal is the primary responsible party under the bond, and must agree to reimburse the Surety for any claims or expenses they incurred because the Principal has not lived up to their agreement.

The Obligee (client or customer) is the main beneficiary under the bond, but the Principal also benefits as well since, if the Principal cannot or will not perform, the Surety steps in and makes good on the Principal’s obligation.

What does a bond cost?

Generally speaking, contract and commercial Pennsylvania surety bonds can cost between .5% and 3% of the contract price or bond amount, depending on the surety’s assessment of the risk involved. The cost of fidelity bonds, on the other hand, usually depends on the number of employees covered.

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