Working with a contractor on construction or design projects is a frequent occurrence in the business world. However, this practice comes with a certain element of risk. It has become common for businesses to manage this risk with license permit bonds. These are special insurance products that helps protect the investment you’ve made into a new project.
Most insurance products name two particular parties, the customer purchasing the policy and the company they’ve bought it from. License permit bonds, also called surety bonds, are unique because they involve three parties, namely the principal, the obligee, and the surety.
- The principal. This party is the one contracted to do a particular job. This might be an electrician, plumber, construction firm, or architect.
- The obligee. This is the party who is asking for work to be done; in effect, they have hired the principal for the duration of a project.
- The surety. This is the party who is providing the obligee with the guarantee that the principal will complete the job and fulfill all other contractual obligations.
How a Surety Bond Works
Before you choose to purchaselicense permit bonds, it’s helpful to understand how this particular insurance product works. If the principal fails to meet the obligations of the contract they signed, then the surety must uphold that promise in other ways. The surety will investigate any claims made by the obligee to see if the principal did in fact fail to fulfill their contract; if this is the case, than the surety will make financial compensation to the obligee.
As you can see, surety bonds help you prepare for the unexpected. No matter what size your project is, a bond will help ensure its successful completion.