What exactly is a Bond?
Two very different things get called a “bond,” and confusing them is the most common mistake we see.
An
investment bond is a debt security. You lend money to a government or a corporation and they agree to pay it back with interest. That is not what anyone means when a contract, a court or a licensing board tells you to get bonded.
A
surety bond is a three-party guarantee, and it is not insurance in the ordinary sense. You, the principal, promise to perform an obligation. A surety company guarantees to whoever required the bond — the obligee — that the obligation will be met. If it is not met, the surety pays the obligee, and then you reimburse the surety in full.
That last part is the defining feature, and it is the one that surprises people:
a surety bond does not protect you. You sign an indemnity agreement, which makes you responsible for every dollar the surety pays out. Insurance transfers your risk to the carrier. A surety bond guarantees your performance and leaves the risk with you.
That is also why obtaining a bond feels more like applying for credit than like buying a policy. The surety is underwriting two questions: can you perform, and can you repay them if you do not.
Nearly every bond a business is asked for is a surety bond. What changes is who requires it and what is being guaranteed. These are the ones you are most likely to encounter:
Surety Bond
This is the parent category — everything below is a type of surety bond, not an alternative to one. The three parties are the
obligee who requires the bond, the
principal who must perform, and the
surety that guarantees performance and expects reimbursement if it has to pay.
Lost Title Bonds — and why Ohio is different
Many states let a vehicle owner obtain a title by posting a surety bond when documentation is missing.
Ohio does not. Ohio does not use a bonded-title process, and the Ohio BMV states that it does not issue titles — in Ohio, titles are issued by the county Clerk of Courts. If you cannot produce a title for a vehicle titled in Ohio, the route is a court-ordered title through the Court of Common Pleas and the county Clerk of Courts, not a bond.
We spell this out because “lost title bond” is advertised widely online and it sends Ohio owners down a path that does not exist here. If the vehicle is titled in another state a bonded title may be available there — the requirement follows the titling state, not your address.
Contract Surety Bond
Contractor bonds are one of the most “popular” bonds you will see asked for in the insurance space. Contract bonds are used in the construction industry by general contractors. They are a guarantee to a project’s owner that the general contractor will adhere to the contract put in place.
License and Permit Bonds
These types of bonds function as a guarantee to a government entity that a company will comply with a statute, state law, ordinance, etc.
Some examples are but not limited to:
- Contractors License Bonds
- Tax Bond
- Environmental Bonds
- Broker’s Bonds
- Motor Vehicle Dealer Bonds
- ERISA Bonds
Our job as an
independent agent is to help you navigate a cumbersome system in finding the best fit for your bond requirements.
We can help you find your bond needs, provide you with your bond, and help you get it to the party requesting.
Call our office today or complete the form below to get started!
Have questions? See our surety bond FAQs →
