Surety bonds are fairly comprehensive and reliable in the way they bring three parties together rather than two, unlike an insurance bond. The three parties are legally bound in an agreement that outlines specific obligations and benefits for each of them.

There are several different kinds of bonds, and each has their own specifications but the general role for each of the three parties i.e., the obligee, the principal, and the surety remain more or less the same.

The Role of Obligee

The obligee is one of the most important parties in a way. They are the clients for the said surety bond, and basically the principal is obliged to them. The obligee could be different things. Most of the time, it’s a state agency which provides licenses to certain professionals in return for a guarantee that they will conduct the business properly.

Alternatively, the obligee could be a private entity or even a government entity. The basics of their role, however, remain the same.

What’s the Principal For

The principal is essentially the one that’s purchasing the surety bond. This will usually be a business or perhaps a sole proprietor. Sometimes, principals are required to obtain the surety bond; however, most of the time, businesses do this on their own to protect the customers.

The principal’s primary role is, of course, to purchase the bond, which they do because they need to provide this guarantee through a third party. All of their actions (the business’s actions) are guaranteed by the surety. If they fail to deliver, claims are made against the bond. The final financial responsibility to pay any claims lies with the principal.

What Does the Surety Do?

The surety has a very important role to play. As the name suggests, they’re the ones providing surety that the principal will complete their obligation according to the contract. They take measures to make sure that the principal can indeed fulfill the obligations and can also pay up in case of claims.

Moreover, the surety is also responsible for looking into claims against the surety bond and may help to negotiate settlements and ensure a reasonable outcome for all parties involved. In case when the principal can’t pay against a claim, the surety will pay instead of them, but the principal would have to pay back eventually.

If you need to speak to an agent to understand better how surety bonds work, give us a call.

We can help you with surety bonds in Los Angeles.