Surety bonds can be confusing, so we’ve created a comprehensive glossary of terms and definitions to help. It can act as your guide as you navigate the world of surety.
As a reminder, a surety bond is a three-party agreement that binds together a surety company, a principal, and an obligee.
- The surety company provides the principal’s bond and financially guarantees the obligee that the principal will follow the terms of the bond agreement.
- The obligee requires the principal to purchase a bond as a safeguard in case the principal fails to fulfill their agreement.
- The principal is responsible for fulfilling the obligations outlined in the surety bond contract.
A
Administrator
A person with the legal right and responsibility to manage an estate’s affairs when the owner dies without leaving a will.
Admiralty Court
Also called “maritime court,” admiralty court hears cases related to sea, ocean, and shipping laws.
Advance Payment Bond
A bond that protects a project owner who provides a down payment to a supplier or contractor.
Agent
Someone licensed by a state to sell insurance or surety bonds for specific underwriters or carriers.
Alcohol Bond
Also called an alcohol beverage bond or a liquor tax bond, an alcohol bond ensures that businesses that sell, manufacture, warehouse, or import alcohol pay taxes and comply with state and federal laws and regulations related to operating their business.
Annual Bond
A bond that covers contractors, awarded bids, or bids that have been submitted during an annual period for a period that ends within the fiscal year.
Appeal Bond
Also called a supersedeas bond, an appeal bond is money held while an appeal is being decided. It ensures the judgment is paid if the appeal fails.
Application
The form a bond applicant must fill out, providing information required for a surety to underwrite a contract.
Attachment
The act of seizing a debtor’s property legally.
Attachment Bond
A type of surety bond guaranteeing that a plaintiff will pay all the legal fees, costs, and damage they sustain if the court renders the grounds for attachment were unnecessary.
Attest
To bear witness to or formally certify that something is true or genuine.
Attorney-in-Fact
Someone designated as a power of attorney by a surety company. This person can act on behalf of the surety to execute a bond. An insurance agent can be an attorney-in-fact.
B
Bad Credit
Credit score can impact a business owner’s ability to obtain a surety bond. It can also affect the annual cost (premium) of the bond. If you have poor credit, you may still be able to obtain the surety bond you need. In general, however, the better credit score you have, the less your bond will cost.
Bad Faith
Consciously doing wrong, intending to deceive, or not taking proper action or investigating when appropriate.
Balance Sheet
A financial statement that outlines a business’s or individual’s liabilities, assets, debts, investments, and equity.
Bank Depository Bond
A bond that guarantees the deposit of public funds.
Bankruptcy
The legal state of a person or business that can’t pay their outstanding debts to creditors. Bankruptcy is usually initiated by the bankrupt party but may also be requested by creditors looking to recoup what they’re owed.
Bankruptcy Trustee Bond
A bond that helps protect beneficiaries of bankruptcy. Beneficiaries are assured that appointed trustees (with the legal ownership of assets held by a trust) will perform their jobs and administer the debtor’s estate according to court rulings.
Beneficiary
The person named in an insurance policy who is eligible to receive benefits.
Bid Bond
Bid bonds are a type of contract bond. Often, a project owner will require project bidders to be bonded to enter a bid in good faith. It protects the project owner from financial loss. If the contractor selected for the project fails to execute the contract properly, the surety company that provided the bond may compensate the owner for any losses.
Bid Spread
The price difference between the winning bid and the two successive bids.
Blanket Bond
A bond that protects an employer from loss due to employees who commit dishonest acts.
Blanket Position Bond
Similar to a blanket bond, a blanket position bond protects the employer from employees who commit dishonest acts, including embezzlement. Positions – opposed to individuals – are covered for a fixed amount.
Blue Sky Bond
A surety bond that many states require securities dealers to obtain. Blue sky laws prohibit the sale of worthless securities and help protect the public from fraud.
Bona Fide
In good faith, sincerely, genuine, or without fraud or deceit.
Bond
A three-party agreement. One party, the surety, issues a bond to the principal to guarantee obligations set by the obligee are met.
Bond Amount
The bond amount (or bond penalty) is the maximum dollar amount a surety guarantees for a bond. If the principal (who was issued the bond) violates the terms and it results in a loss, the surety will be liable for paying the obligee for their loss – up to the total bond amount.
Bond Form
The contract the attorney-in-fact issues on behalf of the surety. It contains essential information for the surety bond issued, including the parties involved in the agreement, the terms of the contract, the bond amount, and the obligation the principal must fulfill.
Bond Penalty
See bond amount.
Bonding Company
The bonding company serves as a surety (or guarantor) for a bond. They’re responsible for any loss due to surety bond term violations by another party.
Breach
Violating or breaking the law, an obligation, a standard, or a contract.
Broker
A direct broker is licensed and appointed to sell insurance or surety from one or more companies. Brokers can help provide clients with the best rates and options available while also offering their advice and expertise. Brokers can act as their clients’ representatives by working directly with the surety or insurance company.
Building Codes
Sets of rules and regulations of governmental bodies that relate to constructing buildings or structures in particular jurisdictions. Building codes are established to protect the public’s health and safety and their general welfare.
Buy-Sell Agreement
A buy and sell agreement is a contract that specifies how each partner’s share of the business would be reassigned if another partner leaves the business or dies. Often, the agreement stipulates that the available share will be sold to the remaining partners.
By-Laws
Rules adopted by an organization to govern its members and regulate its affairs.
C
Cancellation Clause
A condition in a bond allowing the surety to renege on an agreement to terminate their future liability.
Cancellation Notice Period
The minimum amount of time an obligee requires to receive advance written notice before a surety bond is canceled.
Capacity
The maximum size of a bond that a surety company can provide.
Certified Copy
A copy of an original document the authority (who has custody of the original) has signed and attests to be a trustworthy, authentic copy.
Character
The principal’s personal integrity and conscience. A surety may use character as a factor in evaluating risk.
Charge-Off
When a creditor (like a credit card company) believes a debtor is unlikely to pay their debt, a negative factor called a charge-off may be added to the debtor’s credit report. This often occurs when someone’s account is severely delinquent (when they’ve failed to make payments on time).
Chattel
Tangible property other than real estate. Examples may include vehicles, furniture, and other types of personal property.
Claim
When it comes to surety bonds, an obligee or other party can file a claim on a bond stating that they sustained damages after the principal violated the terms of the bond. A claim is a formal notice the surety bond company will evaluate.
The principal will be required to take care of the claim. If they don’t, the surety may start an investigation to determine the claim’s validity. If the claim is valid, the surety company may pay for damages for the principal. The principal will then be required to reimburse the surety for the damages, settlement, and associated legal costs.
Collateral
Cash, a letter of credit, real estate, or something else pledged as security for a bond. A surety bond company may take collateral when an applicant has poor credit. This could increase their chances of being approved.
Combination Crime Policy
A type of fidelity policy that protects against loss due to employees’ dishonest acts. This policy may exclude owners.
Commercial Bond
A surety bond that businesses other than contractors must obtain to guarantee completion of a service or financial obligation. These bonds are often required by the local, state, or federal government as part of a permitting or licensing process.
Commercial Blanket Policy
A blanket fidelity bond that provides a stated amount on regular employees of commercial establishments to cover losses resulting from dishonest acts of employees.
Commission
The money a broker or agent receives from insurance or surety companies after selling insurance or surety bonds directly to buyers.
Committee
Also called a curator or conservator, a committee is someone a court appoints to manage a person’s estate after that person is declared incompetent.
Common Law
Also called judicial precedent, case law, or judge-made law, common law is a body of unwritten laws based on legal precedents established by the courts. Common law was initially introduced in the U.S. from England.
Completion Bond
A completion bond is a contract that guarantees the performance of a project – often construction. If a contractor faces a budgetary issue during the project or fails to complete the project on time, the bond will protect the obligee. Completion bonds may also be issued in the video game production and film production industries.
Comprehensive Dishonesty
A blanket policy that can be written for commercial establishments containing five basic agreements: 1) coverage for employee dishonesty, 2) forgery losses, 3) counterfeit currency and money order losses, 4) on-premises losses, and 5) off-premises losses.
Concessionaire Bond
A surety bond for principals who operate their business ventures on publicly-controlled or publicly-owned property.
Condition
The condition is the essence of the guarantee. It’s one of the four parts of a surety bond.
Consent of Surety
The owner of the bond may need “consent of surety” before they can take specific actions. Contracts often require that the owner obtain the surety’s consent before making a payment for potential claims, defaults, or final payment of retainage under a bond contract.
Conservator
A court-appointed entity or individual responsible for managing the affairs of someone incapable of managing them him/herself (due to incompetence or age). The conservator may be a guardian or someone else the court appoints to protect the incapable party’s interest.
Consideration
Something one party promises to do or does in return for a second party’s promise or action.
Contingent Commission
A commission an agent is paid on top of a regular commission. The contingent commission is a percentage of the profit an insurance or reinsurance company gains through business written with the agent.
Contingent Liabilities
Liabilities that have not yet occurred.
Contract Bond
Construction project owners may require contractors to obtain this type of surety bond to ensure they perform according to the project’s specifications. A contract bond can also guarantee the contractor pays their suppliers, laborers, and subcontractors as expected. Two common types of contract bonds are performance bonds and bid bonds.
Contract Price
The total sum of money an owner gives a contractor once a final settlement is made between the two parties.
Corporate Bond
A type of debt security (bond) issued by a corporation to fund debt financing, capital improvement, expansions, or acquisitions. The issuing party promises to pay its bondholder a specified amount of interest for a specific period and repay the loan on its maturity date.
Corporate Surety
A corporation licensed under different insurance laws that can legally act as surety for others.
Corporation
A corporation is a legal entity that is distinctly separate from its owners. Corporations hold many of the rights and responsibilities individuals possess and can legally enter into contracts, sue and be sued, hire employees, pay taxes, loan and borrow money, etc. Distinctive characteristics include easily transferred ownership rights, limited liability of the owners, and continuous existence despite ownership changes.
Cost Bond
A type of court bond guaranteeing the payment of court expenses. Plaintiffs who file an action within a state they don’t live in may require cost bonds.
Co-Surety
When two or more surety companies guarantee a single bond. All co-sureties are jointly bound to the obligee.
Countersignature
A licensed agent or representative may be required by law in some states to validate a bond by signing it.
Court Bond
This type of surety bond provides protection for the opposing party in a litigation process. It guarantees compliance with the execution of a fiduciary duty or court order. A local, state, or federal court may require these bonds. Common examples of court bonds include appeal bonds, the release of lien bonds, injunction bonds, and replevin bonds.
Cumulative Liability
The total sum of two or more bonds filed in succession – on behalf of one principle. The succeeding bond doesn’t extinguish the liability under the previous bond, or the surety may be liable for the bond penalty multiplied by the total number of years in force.
Custom Bond
Bonds guaranteeing the payment of taxes and import duties. Custom bonds also require compliance with regulations that govern the entry of foreign merchandise into the U.S.
D
Damages
Financial compensation awarded to a party who has been injured by another party or has experienced financial loss due to another party’s conduct.
Deductible
The amount an insured party must pay out of pocket before their insurance provider will pay for/reimburse them for their losses.
Default
When a party fails to perform their obligations as outlined in a contract.
Defendant
The party being accused in a court case.
Defendant Bond
If a lawsuit rules in favor of the plaintiff, a defendant bond will guarantee the payment of damages. This type of surety bond may require collateral.
Delinquency
An account that is past due on a credit report. Often, an account is considered delinquent when it’s over 30 days past due. Once a delinquent account is over 180 days late, it becomes derogatory.
Depositors Forgery Bond
Insurance that protects an individual against financial loss from the alteration or forgery of checks, promissory notes, or drafts.
Depository Bond
A bond that guarantees repayment of money that has been deposited with a bank if the bank experiences financial distress and can’t pay its debts.
Depository Liability
When a public official deposits public funds into a bank, and that bank can’t pay over (due to failure or insolvency), the public official is held liable for those funds. Some states have laws that allow for the designation of public funds and the furnishing of collateral security by depositories. In these cases, laws may exempt the public official from being held responsible for the loss that occurs due to the failure of qualified and designated depositories.
Derogatory
A negative mark on a credit report. Payments over 180 days late are often considered derogatory, as are collection accounts, foreclosures, charge-offs, and repossessions. Bankruptcy, civil judgments, and tax liens are public records that are also regarded as derogatory.
Design Build
A single entity provides all necessary services to design and construct a project based on the requirements the owner has established.
Discharge
The removal or release of a liability or obligation. For example, certain court bonds require a discharge to release the obligation stated in the bond.
Discharge Mechanics Lien
This type of bond can discharge the lien from a property due for labor or construction materials and attach it to a bond instead. Then, the lien must be removed from the bond before it can be extinguished entirely. With the bond, the property owner may sell or improve their property as if the lien didn’t exist. However, they must still pay the contractor the amount owed, or the contractor could file a claim against the discharge mechanics lien bond.
Disclosure
Making something that was previously unknown known.
Discovery Bond
A type of fidelity bond that protects against fraudulent or dishonest acts of employees. The loss must be discovered after the bond is effective and before it’s terminated, but the act could have occurred at any time.
Discovery Period
The period after a bond contract has been canceled in which the insured discovers if they sustained a loss that would’ve been recoverable if the contract had remained in force. The period typically lasts between six months and three years.
Dishonesty Insurance
Fidelity bond coverage that guarantees against loss caused by dishonest public officials/employees or dishonest officers/employees of a commercial firm.
Division
Part of a corporation. A division’s assets aren’t separate from the corporation’s. The corporation is responsible for any of the division’s debts.
Durable Medical Equipment (DME)
Any medical equipment that businesses or individuals use. Examples may include oxygen tents, CPAP, hospital beds, iron lungs, crutches, monitors, and wheelchairs.
E
Earned Premium
The premium amount a surety collects for the portion of a bond that has expired.
Effective Date
The date a surety bond takes effect or becomes active.
Employee Retirement Income Security Act (ERISA)
ERISA is a federal law established in 1874 to protect Americans’ retirement assets. It includes legal guidelines for administering investment practices and private pension plans. ERISA requires a fidelity bond (ERISA bond) to ensure that fiduciaries who administer, manage, and supervise pension plans don’t misuse the funds.
Encumbrance
A documented claim against some property (e.g., a mortgage).
Endorsement
Also known as a rider, an endorsement is a form attached to a bond that varies, alters, or adds to its provisions.
Enjoin
To forbid or prohibit via legal action.
Equity
Equal treatment. State laws prohibit insurance companies from discriminating against consumers except according to valid underwriting criteria. Insurance companies may set premium rates based on expected losses for groups of insureds with similar loss characteristics.
Errors and Omissions Insurance (E&O)
Insurance that can cover damages resulting from professional mistakes due to negligence, unintentional acts, or the failure to act.
Escrow
When an arrangement is made for a neutral third party (i.e., a depositary or escrow agent) to hold the funds or assets a contracting party has paid to another contracting party. The third party may hold these funds until a specified event. For example, in a real estate sale, the property deed and earnest money are often placed in escrow. The funds may be released once other contractual conditions are fulfilled.
Excess Bond
Extra coverage may be added to a primary bond or policy to protect against loss above a specified amount.
Exclusion
In a bond, an exclusion is a provision that refers to property or perils that aren’t covered.
Executor
The person or entity specified or appointed to execute the provisions expressed in a will.
Expense Ratio
The percentage of a premium used to pay for the costs of acquiring, writing, and then servicing a surety bond.
Experience Rating
A premium rate developed for specific policyholders based on their loss experience. The manual rate may be modified. If the policyholder’s experience has been positive, the premium may be decreased. If negative, the insured’s premium may end up being higher than the manual rate result.
Expiration Date
The date a surety bond becomes inactive or is no longer in effect.
Exposure
The susceptibility of an individual/entity to encounter losses or risks throughout their life or course of business.
F
Facultative Reinsurance
The coverage a primary insurer purchases to cover a single risk or a defined package of risks held in their book of business.
Fee
The money someone must pay after losing a physical security they’ve been issued and must obtain a duplicate.
Fidelity Bond
A type of surety bond that protects employers from property or financial losses resulting from the dishonest or fraudulent acts of employees.
Fiduciary
A person/entity appointed by a court with the legal duty to act in the interest of another party.
Fiduciary Bond
Also called a probate bond, a fiduciary bond is a type of judicial bond that guarantees the performance of a fiduciary.
Fiduciary Liability
An insurance policy that protects employee-benefit trustees against personal loss resulting from their omission, wrongful act, or error of managing any employee-benefit plan.
Financial Guarantee Bond
A surety bond that is often considered high-risk by sureties and must be carefully underwritten. This bond requires the surety to provide a backstop for the principal’s financial guarantee in addition to ensuring compliance with permit or licensing requirements. Examples of this type of bond include bail bonds, sales tax bonds, plaintiff review bonds, and appeal bonds.
Financial Institution Blanket Bond
A bond form from the Surety Association of America that protects financial institutions from the fraudulent or dishonest acts of employees, theft, and losses from forged or counterfeited documentation.
Financial Statement
A report that summarizes an organization’s financial status over a specific period. It includes the organization’s flow of resources, activities, profit or loss, and retention or distribution of profits.
Fixed Penalty Bond
These bonds are required when lost items have a fixed value (e.g., certificates of deposit, certified checks, or money orders).
Forfeiture Bond
A surety bond that demands paying the full penalty if the conditions are breached, regardless of the loss or damage amount.
Forgery
Creating or altering a document with fraudulent intent. Examples include forging signatures and counterfeiting.
Funds Control
Often used with contract surety bonds, funds control is a way to ensure that funds are appropriately dispersed to subcontractors and suppliers involved in a construction or building job.
G
Game of Chance Bond
A bond that New York and Florida require to ensure entities sponsoring contests will award their promised prizes or cash to legitimate winners.
Garnishment
The attachment and distribution of a property to legally satisfy a debt.
General Average Bond
A cargo owner’s bond that ensures the owner will pay general average contributions if a general average loss occurs during a marine voyage.
General Indemnity Agreement (GIA)
A contract between an indemnitor and a surety company. The indemnitor agrees to protect the surety company from losses or expenses they may sustain due to issuing a bond on behalf of a principal.
Generally Accepted Accounting Principles (GAAP)
GAAP is a set of rules for recording and reporting accounting information. Its goal is to enhance consistency, clarity, and comparability in communicating financial data.
General Partnership
A business organization (LLC, sole proprietor, corporation, etc.) with two or more co-owners who are considered general partners without limited liability.
Grain Wholesale Bond
Grain warehouse owners may use this type of statutory bond to guarantee the delivery of grain to farmers according to the terms of receipt.
Guarantor
The party that is secondarily liable for the performance or debt of another party (e.g., a surety).
Guarantee
The guarantor provides legal reassurance (a guarantee) to pay a second party’s debt or to perform an obligation if the second party fails to.
Guardian
The person legally responsible for the management and care of a minor or someone unable to administer their own affairs.
I
Interstate Commerce Commission (ICC)
The ICC was a railroad industry regulatory agency in the U.S. Today, the organization is called the National Surface Transportation Board. It exists to regulate and decide disputes involving various transportation matters.
ICC Broker Bond
A bond required by the Federal Motor Carrier Safety Administration (FMCSA) that guarantees the delivery of goods and financial payment to shippers and motor carriers in case a company fails to fulfill its contract.
Immigrants Bond
A type of federal bond that can cover legal aliens who enter the U.S. for temporary or permanent reasons. Immigrants bonds are required to guarantee that aliens don’t become public charges.
Income Tax Bond
A type of surety bond that guarantees the payment of federal income taxes (especially when in dispute).
Indefinite Term
A bond with no expiration date.
Indemnification
An agreement to not place blame or take legal action against another in the event of a loss.
Indemnify
To reimburse an insured party for the amount they are legally obliged to pay, rather than making a direct payment on their behalf. The insured party will first make the payment and then be indemnified by the insurer.
Indemnitor
In a surety bond, the indemnitor is the party that assumes the principal’s obligation if a bond defaults.
Indemnity
Compensation for loss, damage, or injury.
Indemnity Agreement
A contract where an agreement is formed to restore a party to its original financial status after they incur a loss or injury.
Indemnity Bond
Any bond that protects an obligee against direct loss resulting from a principal’s failure to perform.
Individual Bond
A bond written in the name of an individual public employee.
Industrial Alcohol Bond
Manufacturers of industrial alcohol are required by the Bureau of Alcohol and Firearms (ATF) to obtain this bond to guarantee that liquor will be manufactured and distributed according to federal regulations – and that taxes will be paid appropriately.
Injunction
A court order prohibiting or restricting an act permanently or temporarily.
Injunction Bond
A type of court bond that may cover any damages the defendant sustains if the court rules that the plaintiff’s suit is wrongful.
Injunction Defendant Bond to Dissolve
A type of bond that suspends the operation of an injunction.
Injunction Plaintiff Bond to Secure
A type of court bond ensuring the plaintiff pays court costs, fees, and damages sustained by the defendant in a case where the court determines an injunction shouldn’t have been granted in the first place.
Instrument
A legal or formal written document (like a contract, bond, or will).
Insuring Clause
The part of an insurance policy that contains the insurer’s obligation to pay covered claims, which may be subject to specific exclusions and conditions.
Interstate
A person who dies without leaving a will.
J
Joint and Several Liability
When two or more parties in a lawsuit are equally responsible for carrying out the terms of an agreement.
Joint Venture
When more than one individual or company engages in a limited business transaction where profits and losses are shared according to an agreement.
Judgment
A formal decision a court makes after a lawsuit. A judgment can impact the amount someone must pay for a surety bond.
Judicial Bond
A type of court bond guaranteeing that court costs of attachment, appeal, and injunction are secured.
L
Labor and Material Bond
A bond that protects an owner or general contractor by guaranteeing that a contractor or subcontractor at a construction site will pay for labor and materials.
Large Deductible Plan
An insurance bond that helps protect the insurer if a policyholder fails to make payments. The insurer will pay all losses upfront. Then the policyholder may reimburse the insurer on a monthly or quarterly basis.
Lease Bond
A bond that ensures that a party leasing property will make their payments and fulfill the terms of their lease.
Letter of Credit
A letter from a bank issued to another bank that guarantees a buyer’s payment to a seller will be made on time and for the correct amount.
Liability
Being legally responsible for something.
License and Permit Bond
A bond required for obtaining a permit or license from the county, city, state, or federal government.
License Bond
A bond ensuring that the person issued a license will abide by all laws, ordinances, and regulations associated with it.
Lien
The claim on someone else’s property resulting from the need to satisfy a debt or obligation.
Limit of Liability
The maximum amount of money an insured party can collect or is insured for under an insurance policy or bond policy.
Limited Partnership
A partnership comprising at least one limited partner (with limited liability for partnership debts) and at least one general partner (with unlimited liability for partnership debts) who manages the business.
Line of Credit
A borrowing limit that has been predetermined and established by a financial institution for an organization or individual.
Liquid
Assets that can be converted into cash.
Litigate
Attempting to resolve a conflict through legal proceedings.
Loss
A monetary amount a surety company either pays or reserves for payment to cover a claim that has been filed against a bond.
Lost Instrument Bond
A bond that insures a party against damages resulting from reissuing lost security (such as a money order).
M
Maintenance Bond
A surety bond that a contractor is required to purchase to protect a project owner from poor workmanship or defective materials for a specific time period after project completion.
Manual Rate
A rate insurance companies use based on collected claims data – adjusted for different groups based on various characteristics.
Mechanics Lien
A legal claim against property (such as a home). Subcontractors and suppliers often use mechanics liens when they don’t receive payment for remodeling or improving a property. If there’s a lien on a property, the owner can’t obtain a clear title until it’s settled.
Miller Act
The Miller Act was established in 1935 and is a federal law requiring contractors working on federal construction projects to obtain surety bonds. Any contractor who bids on a federal project must post a payment bond and a performance bond to cover labor and materials.
Minimum Premium
The lowest premium amount an insurance company will issue for a policy.
Minor
Someone under the age of legal competency – usually in the age range of 18 to 21, depending on the state.
Miscellaneous Bond
A type of commercial surety bond that doesn’t fall into any of the more common bond categories. These bonds often serve a unique purpose.
Miscellaneous Indemnity Bond
Bonds designed to cover items or events that don’t fall into typical categories. Carriers may consider these bonds higher risk and more difficult to write.
N
Name Schedule Bond
A type of fidelity bond covering an employer against loss resulting from the dishonest acts of employees. A schedule is attached to the bond listing individuals and the amount of coverage listed for each one.
Name Schedule Public Official Bond
One bond with an attached schedule individually listing all public officials being bonded – a panel of city council members, for example.
Notary Public Bond
A notary public is required to obtain this bond to protect against losses that may occur if improper actions are taken.
O
Obligee
One of three parties in a bond agreement. The obligee is the beneficiary of the bond – the one the bond protects against loss or liability.
Open Penalty
A bond without a fixed amount of coverage. The surety’s liability in an open penalty bond is unlimited.
Ordinance
A public regulation or law enacted by a municipal authority.
P
Payment Bond
A type of bond that guarantees payment/offers protection to workers or suppliers on public jobs. For example, a contractor may obtain a payment bond to ensure payment to suppliers or subcontractors.
Penalty
The amount of money a surety guarantees for a bond. A penalty (or bond amount) is the most the principal or surety will have to pay if the terms of the bond are violated.
Pension
The financial compensation that a retired employee receives from their employer – usually on a monthly basis.
Performance Bond
A bond that promises that a contractor will complete a project according to the terms of the contract. A performance bond protects a project owner from financial loss if a contractor doesn’t fulfill a contract’s obligations.
Plaintiff
A business or individual filing suit (accusing another party of wrongdoing) in a court of law.
Plaintiff Bond
A surety bond that ensures payment of any damages suffered if the court rules in the defendant’s favor.
Position Schedule Bond
A type of fidelity bond for employers that guarantees against loss due to the dishonest acts of employees holding specific positions in the company. Each position is listed in a schedule attached to the bond with a particular coverage amount associated with it.
Post-Closure Surety Bond
An environment bond the government requires a principal to obtain to guarantee the performance of post-closure activities.
Premium
The amount someone pays for a bond for a specified term – excluding fees and taxes.
Premium Financing
Paying a surety bond with money borrowed from an outside financing company to spread out the cost over time.
Principal
The party (business or individual) that purchases a surety bond and promises to fulfill their obligation according to the contract terms.
Probate Bond
A type of court bond required for minors, those incompetent of managing their own affairs, or estates of the deceased. Also called fiduciary bonds, probate bonds guarantee the wishes of deceased persons are executed honestly and ethically for the heirs of an estate. Probate bonds may also be used to ensure the courts that trustees, guardians, or administrators fulfill their duties properly. They guarantee the court that the probate process is carried out according to the law.
Pro-rata
A proportionate allocation. Pro-rata can be used to determine a surety bond premium for just the portion of the year the bond will be in effect. You can calculate it by dividing the total number of bonded days by 365 and multiplying it by the annual premium.
Public Official
A person in a position of authority (like a president or mayor) who holds public office.
Public Official Bond
A type of bond guaranteeing protection from violations of duty by a public official.
R
Rate
The premium amount charged for a surety bond. The surety bond rate is calculated as a percentage of the surety bond penalty. Underwriters base rates on the expected loss rate for each bond type along with applicants’ risk profiles.
Reclamation Bond
A surety bond guaranteeing that a principal will reclaim land to its original condition after it’s been disturbed or altered by mining operations.
Release of Lien Bond
When a lien on a property is removed and attached to a surety bond instead.
Renewal
A valid extension of a surety bond term.
Replevin
The legal action to restore personal property that has been detained or wrongfully taken.
Replevin Bond
A type of surety bond allowing a plaintiff to assume ownership of a property in question before a court trial in a replevin lawsuit. If the plaintiff loses the case to the defendant, the defendant may repossess the property.
Retrospective Plan Bond
A type of bond with a final premium payment based upon an administrative charge and incurred losses.
Rider
Also known as an endorsement, a rider is a provision that modifies the terms of a surety bond.
S
Small Business Administration (SBA)
The Small Business Administration helps entrepreneurs plan, start, and grow their businesses by connecting them with lenders and funding. The SBA also has programs to help companies obtain surety bonds.
Self-Insurers Retention Plan Bond
A type of bond that promises to pay self-insured losses if the self-insurer can’t fulfill their obligations. These bonds are often used for general liability and workers’ compensation coverage.
Subdivision Bond
A type of contract performance bond guaranteeing public improvements to land within a subdivision.
Supply Bond
A bond covering a supplier’s contract. If a supplier fails to deliver materials and supplies as contracted, a supply bond may cover the losses.
Surety
A party that guarantees the actions of another party. A surety company is authorized to carry insurance to ensure the performance of a principal to the obligee (often a project owner or government body). The surety is legally responsible for the liability of the principal.
Surety and Fidelity Association of America (SFAA)
A trade association and licensed rating agency that acts as an advisor and thought leader for the surety and fidelity industry and governmental agencies and legislators.
Surety Bond
A three-party agreement between a principal (contractor), an obligee (project owner), and a surety company. The surety bond guarantees that a principal will follow through and complete work on time, on budget, and according to contract terms. If the obligee incurs any losses due to poor performance, the surety company will provide monetary compensation. The obligee will then be indebted to the surety company.
T
Tax Bond
A financial guarantee bond that ensures a business that the principal will pay all taxes owed.
Term
The length of time a bond is active – starting with bond issuance and ending with bond maturity.
Treasury Listing
The Department of Treasury lists all surety bond companies approved to write federal surety bonds (do business with the U.S. government).
Trustee
An entity or a person authorized to administer property or assets for a beneficiary.
U
Underwriter
The party that determines a principal’s risk of loss so the surety can provide the principal with a quote for their bond premium.
Utility Bond
A surety bond that guarantees that a principal will keep up with utility bill payments.
W
Window
A favorable opportunity or opening in which a desired action may be taken.
Work-on-Hand Report
A report for communicating a contractor’s jobs in progress to their bankers and surety company.
Workers’ Compensation (Self-Insurer’s) Bond
A bond that guarantees an employer will pay an employee who is injured on the job. Rather than buying workers’ compensation insurance, an employer may opt for posting a worker’s compensation bond instead, though it may prove risky. If the employer fails to pay a claim, their surety company will compensate the employee. The employer will then be liable for reimbursing the surety for the damages.