Surety bonds are a financial instrument that provide a guarantee of performance or fulfillment of obligations to a third party. The cost associated with obtaining and maintaining a surety bond is typically borne by the party known as the "principal." The principal is the individual or entity that is required to secure the surety bond as a condition of engaging in certain activities or transactions.
In most cases, the principal pays for the surety bond because they are the party benefiting from the bond's financial assurance. The bond premium, which is the fee for obtaining the bond, is paid by the principal to the surety bond company. This payment helps cover the potential financial losses that the surety company would be liable for if the principal fails to meet their obligations.
The principal's payment of the surety bond premium is an important aspect of the bond agreement. It serves as a demonstration of the principal's commitment to fulfilling their promises, contracts, or legal requirements. By obtaining a surety bond and paying the premium, the principal is offering a financial guarantee to the obligee (the party who is protected by the bond) that they will fulfill their obligations.
In certain cases, the principal may include the cost of the surety bond premium as part of their business expenses, especially when the bond is required for licensing, permits, or contracts. Ultimately, the payment for a surety bond is a responsibility shouldered by the principal, ensuring that they uphold their commitments and provide confidence to the parties relying on their performance.Apply »