Ramey King Insurance
Surety Bonds in Texas
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What are surety bonds?
Failing to uphold a contract can have serious financial consequences if the other party sues. Surety bonds help Texas businesses that enter into major contracts better protect against this risk.
Surety bonds may protect businesses if they fail to meet contractual obligations. A bond may pay financial remuneration to the other party, so the business at fault doesn’t have to.
What Texas businesses need to get surety bonds?
Surety bonds are used in many situations where major contracts or large purchases are made. Auto dealerships, contractors, fiduciaries and custodians in Texas often get these bonds, as do others.
This isn’t to say that all of these bonds are the same, though. Insurance companies offer a variety of specialized options for the different businesses and individuals that get these loans.
Typical Coverages
What type of surety bond do contractors purchase?
Contractors might purchase a few different types of these bonds, depending on where they’re at in a project. Some of the main bonds that contractors get are:
- Bid Bond: Usually guarantees that the contractor, if chosen, will enter into the contract as proposed.
- Performance Bond: Usually guarantees that the contractor will complete the project in accordance with the stipulations outlined in the project’s contract.
- Payment Bond: Usually guarantees that the contractor will pay all wages owed to their employees and subcontractors.
- Maintenance Bond: Usually guarantees that the contractor will address any defects found after the project's completion.
Many contractors may find that they’re unable to get large, typically commercial, jobs without first securing the appropriate bond(s).
What type of bond do fiduciaries purchase?
People who have a fiduciary obligation to another individual may want a surety bond. Bonds are often used when there’s a financial obligation to someone else. In these situations, the fiduciary might want any of a few different bonds:
Individuals with legal obligations to others, mainly those with fiduciary responsibilities towards financial clients or individuals whose finances they manage, might require bonds. These, often referred to as probate bonds, come in various types:
- Executor Bond: Normally ensures the efficient management and handling of an estate belonging to a deceased individual who left a will.
- Administrator Bond: Normally ensures the effective management of a deceased individual's assets when there is no will present.
- Guardianship Bond: Normally ensures the proper administration and management of assets that belong to a minor or disabled adult.
- Conservatorship Bonds: Normally ensures the proper and accurate handling of an estate that is owned by a ward.
An agent specializing in surety can help fiduciaries (and others) find the right type of bond for their needs.
Typical Coverages
What type of surety bond do auto dealerships purchase?
New Hampshire state law normally requires that auto dealerships selling more than five vehicles to the general public obtain a Retail Vehicle Dealer License. One of the general prerequisites to getting this license is first having a surety bond of at least $25,000 in the dealership’s name.
Thus, most auto dealerships in the state need an auto dealer bond in the amount of $25,000. Dealerships typically get the same type of auto dealer bond.
The purpose of this bond is to help protect customers against potentially fraudulent transactions, as a fraudulent sale of a vehicle could result in major losses for a customer.
What are the three parties involved in a surety bond?
A surety bond typically involves three parties:
- Surety: The entity providing financial compensation if there’s a breach (usually an insurance company).
- Obligor: The entity obligated to fulfill contractual duties (such as contractors, car dealers, or fiduciaries).
- Obligee: The beneficiary compensated by the bond in covered breaches (such as customers or wards).
Should the obligor fail to meet their commitments, the surety may step in to compensate the obligee.
How can surety bonds be obtained in Texas?
Although they’re not conventional insurance policies, insurance companies typically also issue surety bonds. For help securing a surety bond in Texas, contact the independent insurance agents at Ramey King Insurance.
Questions?
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