Glossary of Surety Bond Terms
Applicant
The individual or business applying for a surety bond. Also called the principal once the bond is issued.
Bond Amount (Penal Sum)
The maximum dollar amount the surety may be required to pay if a valid claim is filed.
Bond Claim
A formal allegation that the bonded party violated laws, regulations, or contractual obligations. If valid, the surety pays the harmed party and the principal must reimburse the surety.
Bond Form
The official document issued by the state or obligee that outlines the bond’s requirements, obligations, and conditions.
Bond Premium
The cost the principal pays to obtain the bond. Typically a small percentage of the total bond amount.
Commercial Bond
A category of bonds required by government agencies to ensure compliance with laws and regulations (e.g., license & permit bonds).
Contract Bond
A bond used in construction to guarantee performance, payment, or bid obligations.
Credit Check
A review of the applicant’s credit history used by the surety to determine risk and pricing.
Indemnity Agreement
A legally binding contract requiring the principal (and often owners) to reimburse the surety for any losses or claims paid.
License & Permit Bond
A bond required by state or local agencies to ensure businesses follow regulations and operate ethically.
Obligee
The government agency or entity requiring the bond. The obligee is protected by the bond.
Performance Bond
A contract bond guaranteeing that a contractor will complete a project according to the contract terms.
Payment Bond
A contract bond guaranteeing that subcontractors, suppliers, and laborers will be paid.
Principal
The individual or business required to obtain the bond and responsible for fulfilling the bonded obligations.
Renewal Term
The period for which a bond remains active before it must be renewed, often annually.
Surety
The company that issues the bond and guarantees the principal’s obligations. If a claim is paid, the principal must reimburse the surety.
Underwriting
The evaluation process used by the surety to assess risk, review credit, and determine bond pricing.
Underwriter
The professional who reviews the application and decides whether the bond can be issued and at what rate.
Utility Bond
A bond guaranteeing payment of utility bills for commercial accounts.
Warranty Bond
A bond guaranteeing that a contractor will correct defects or workmanship issues during a warranty period.