A surety bond is a financial instrument that is used to guarantee some obligation. In the contractor business, New Jersey surety bonds are used to guarantee completion of a project contract. The terms are that if the construction contractor company (known for the bond as the principal) does not complete a job, usually within a specified time period, then the bond is an obligation to pay a penalty to the client (known as the oblige) some amount of money. In this way, the surety bond is an insurance for the oblige against default by the contracting company.
In the United States, New Jersey surety bonds are usually issued by an insurance company (known as the surety). Most insurance companies require that the insured client company be able to demonstrate that the contractor company has the means to complete the job. The amount of resources of the contractor against unforeseen circumstances gives them the ability to deal with unanticipated problems. This ability to deal with unanticipated problems forms determines the amount of risk for the contractor company, and allows the insurance company to determine the risk associated with the surety bonds, and to determine the appropriate price for the desired level of penalties. To make sure that the insurance companies issue stable bonds, state insurance commissioners carefully monitor the transactions of the surety issuances. These commissioners are also responsible for issuing the licenses certifying an insurance group as a healthy surety provider.