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In its simplest form, a surety bond is an agreement by on person (the surety) to answer for the failure of another person (the principal) to perform as he or she has promised.
Most commercial surety bonds are provided by Insurance Companies, and surety bonding is regulated in the same manner as Insurance. Thus, despite some basic differences from most Insurance policies, surety bonds are considered to be a part of the Insurance Business.
The surety is thus similar to a cosigner on a loan. If the surety is required to make any payments or perform any duties on behalf of the principal, the surety is entitled to reimbursement from the principal.
In that respect, surety bonds differ from most Insurance policies, since under an Insurance Policy, the Insurance company cannot require its own insured to reimburse it after it pays a covered claim.
About the Author: Ahsan Bashir is an experienced Tax Consultant based in Irving, Texas, with over 25 years of expertise spanning Taxation, Accounting, Business Lending and Mortgage, Risk Management, Business Insurance, and Business Consulting. Through his firm, Z-Tax & Accounting, he provides comprehensive financial services including Individual and Business Tax Preparation, Bookkeeping, Payroll Processing, and Business Consulting. As an Enrolled Agent authorized to practice before the Internal Revenue Service (IRS), and an IRS Certifying Acceptance Agent (CAA), Ahsan Bashir delivers trusted, professional solutions tailored to the unique needs of both individuals and businesses.
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