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Of all the different types of surety bonds, the contractor license bond is among the most important. This is because a license bond is usually required by a government entity, whether it be a state, county or municipality. Contractor license bonds are a type of commercial bond that guarantees the contractor will fulfill the terms of the license and abide by the governing body’s laws in carrying out and completing a project. The bond ensures the contractor will repay and reimburse any person who might suffer a loss should the contractor violate the code. The bond will also cover any consumer who might become the victim of fraud as the result of a contractor’s unethical performance.
A contractor license bond binds together three parties: The construction company that buys the bond (the principal), the government agency that requires contractor bonding (the obligee) and the company that issues the bond guaranteeing the contractor’s adherence to the contract (the surety).
Unlike a traditional insurance policy, the surety will not only absorb the loss the obligee suffers if the contractor fails to comply with the terms of the bond, the contractor must also repay the surety for the claims it has paid. This provision, called an “indemnification clause,” is contained in the legal language of the bond to make certain the surety suffers no loss.
Another example of government entity involvement in bonding is the school bond, which is used to fund school construction projects. Generally, the project, and initiative to sell the bonds to fund it, must be approved by a majority of voters in an election. Municipal bonds, like school bonds, offer certain advantages, such as usually being tax-exempt and having a very low incidence of default.
Parking lot bonds are surety bonds that are very different from school bonds but are essential to protect the business that operates a public parking lot. Also known as a valet bond, a parking lot bond guarantees the loss from damage to or the theft of a vehicle that is in the care or control of the lot’s owner.
We at Simon Insurance are your source for all types of bonds. Does your project require contractor bonding? We can help you obtain that necessary contractor license bond. Just call us at 561.948.4141, and we will gladly provide you with a free consultation.