There are many legal situations in which a person or business might need a sureties. Understanding Texas surety bonds is not that complicated once you begin to think of it as a type of insurance policy. Essentially, a surety ensures someone or some business that another person or another business will follow through on a specific action, or will act in accordance with specific laws. The Texas surety bond is in place to cover the cost of damages, legal fees, losses, and other financial obligations that arise if the laws aren’t followed or the actions aren’t taken.

If you’ve never heard of a surety before, don’t worry. These policies are common across a huge range of industries in the country, yet they often get treated as part of the fine print. Even those who have studied business contracts and law can get confused by what a surety really is and how one works. This simple guide explains everything you need to know about a Texas surety bond.

Surety Bonds in Texas

A surety is a legally binding agreement between three parties. The first party is the principal. This is the person, business, or entity who needs to perform some action, or act in accordance to certain laws. Their actions need to be backed up by the bond.

The second party is the obligee. This is the person, business, or entity that requires proof that the principal will follow through with the correct action. This is the party that assumes financial risk should the principal not follow through with the correct action.

Finally, there is the surety company, such as NFP. We offer the sureties to the parties, offering a financial safety net should the principal fail to follow through.

How Do Bonds Work?

When two parties agree on mutual terms for some action, they can then purchase a bond to ensure that financial obligations related to the action are covered. In most cases, a bond never does anything more than provide a much-needed safety net for peace of mind. If both parties act according to the agreement, then nothing more needs to happen. The surety will expire when the contract terms are up, and everyone parts ways.

However, if the principal fails to act in the manner that was agreed upon, then there are legal or financial repercussions that need to be dealt with. Here’s an example: A city hires a contractor to repair issues with the sewer system. By hiring this contactor, an agreement is made that the contractor will perform all work up to the standards of the state or local inspection agencies. If the work is not performed to this standard, it could mean legal fines for the city. But if the contractor is bonded, the bond company would pay for the fines caused by the contractor’s sloppy work.

What Is the Difference Between Surety and Insurance?

Sureties are an agreement between three parties, while insurance is an agreement between the insurance company and the insured party only. At first glance, bonds do sound a bit like insurance, but there are some big differences:

  • Sureties are meant to protect the financial interests of the hiring party, rather than the purchaser of the bond.
  • Sureties are in some cases repaid by the principal should the losses be recoverable. Insurance companies do not expect to receive a repayment; instead, they are repaid through their rates.
  • Sureties are written so that they can only be used for one specific legal agreement. Insurance agencies write catch-all policies that the individual party can use as backing in many legal agreements.

How Do I Get Bonded in Texas?

Getting bonded in Texas is now extremely easy. Fill out our online application and we’ll get your bond to you as soon as possible.

Types of Sureties

There are several types of bonds.

  • Contract: also called bid bonds, this is a bond between a contractor and an entity hiring a contractor to perform some work. It guarantees that the contractor will perform the work for the amount bid. Once the contactor sticks to the bid amount, the contract bond expires.
  • Commercial: this bond guarantees that a contractor will perform all work up to the legally required standards of the state or local area. Commercial bonds may also be called license and permit bonds.
  • Fidelity: if an employee steals from an employer, this bond covers the losses from the theft.
  • Public official: this bond guarantees that a publicly elected official will act in accordance to the law. Should their actions be unlawful, and lead to the loss of taxpayer dollars, this bond covers the loss.
  • Judicial: this type of bond guarantees that one party involved in a law suit will act according to the final ruling of the judge. For example, a bond can act as proof that a person being sued will pay the amount if the judge orders it. However, if the judge finds in their favor, the bond expires and the defendant did not have to put their own money or possessions at risk while awaiting the ruling.
  • Fiduciary: this type guarantees that anyone acting on behalf of another person in a legal setting, such as a guardian or conservator, does not lose the assets of the person they are representing.
  • Miscellaneous: there are many types of bonds that fall under the category of “federal” or “miscellaneous,” due to the complex legal nature of the bond. For example, importer/exporters are often bonded against loss due to illegal actions.

Within all of these types of bonds, hundreds of different industries and legal situations could find themselves in need of a surety solution.

Our team provides a variety of affordable surety bond Texas and fidelity bond insurance. Every Texas surety bond is prepared on a specific bond form, as prescribed by the entity requiring the bonding (the obligee). You are invited to apply for your Texas bond now by completing our online application. If you prefer, you can download an application to complete and email to our bond agency for processing.