What Do Surety Bonds Cover?
A surety bond involves three parties: for a city construction job, the contractor is the principal, the city is the obligee, and the surety guarantees the specified obligation if the contractor defaults. 1,2
Not a Substitute for Your Own Insurance
A surety bond protects the customer or other obligee if the business does not meet the bonded obligation; it is not a substitute for the business’s own liability or property insurance. 2,7,1Dishonest Acts Versus a Guaranteed Obligation
A fidelity discussion concerns loss from dishonest acts; a surety bond concerns a guarantee of an obligation to another party. 1Who Needs Surety Bonds?
You may need a surety bond when a customer, contract, license or permit requires one. Start by getting the exact bond form and amount the requirement specifies. 2,7,5
Surety Bonds Coverage Examples
What happened
A Project Owner Requires a Bond
A customer asks for a bond before your construction project can begin.
How Do You Compare Surety Bonds Coverage and Costs?
Contract Bonds and Commercial Bonds
Contract bonds guarantee that the terms of a specific contract will be fulfilled; commercial bonds address legal or regulatory obligations such as licenses, and they are a different product discussion. 2,5,6Bid, Performance and Payment
Bid, performance and payment bonds serve different contract needs: the bid, completing the work, and paying suppliers and subcontractors. 2,3,5 Identify who requires the bond, the exact obligation, and whether the need is a license or permit, a bid, performance of a job, payment of subcontractors, or another commercial bond form. 2,5,7| Hypothetical need | What to identify |
|---|---|
| Auto-dealer license | The regulator and the license or permit bond form |
| School-renovation bid | The owner and the bid-bond requirement |
| Awarded job, subcontractors to be paid | The payment-bond requirement |
| Completing the awarded work | The performance-bond requirement |
What Are the Bond Requirements for Federal Construction?
For a federal construction project, check the solicitation and applicable bonding requirements with the contracting officer before arranging performance or payment bonds. 4How Does Surety Bonds Compare With Related Coverage?
Letters of Credit and Other Security
If a contract permits a letter of credit or a surety bond, compare those options with the obligee’s stated requirements rather than assuming they are interchangeable. 5What Do You Need for Surety Bonds Quotes?
Sureties evaluate the business’s credit, capacity and character; prepare financial information and a description of the work or license to be bonded. 2 Prepare the obligee’s required bond form and amount, the contract or license documents, and financial information for the surety’s evaluation. 2,7,5Obligee Forms, Job Details and Financials
| Prepare | Ask the broker |
|---|---|
| Obligee and obligation | Which license, bid, performance, payment or other bond form is required? |
| Required form and amount | Does the proposed bond match the obligee’s form and amount? |
| Contract or license documents | What documents does the surety need to evaluate the obligation? |
| Financial information | What financial records support the surety’s review? |
Surety Bonds: Key Terms in Plain English
Principal and Obligee
The principal owes the obligation; the obligee is the party to whom it is owed. The surety guarantees that obligation if the principal defaults. 1,2
Performance and Payment Bonds
Different guarantees for completing work and paying suppliers or subcontractors. 2,3,5
Frequently Asked Questions About Surety Bonds
Who Does a Surety Bond Protect?
Are Performance and Payment Bonds the Same?
How Is a Commercial Surety Bond Different From a Contract Bond?
Surety Bonds Guides by State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Which Insurance Providers Offer Surety Bonds?
Sources for Surety Bonds
- Glossary of Insurance Terms. National Association of Insurance Commissioners; Surety Bond; Fidelity. Accessed 2026-09-16.
- Surety bonds. U.S. Small Business Administration; Opening guarantee of work completion; Contract or commercial bonds; Bid, Payment, Performance, Ancillary; Eligibility > credit, capacity, and character. Accessed 2026-09-16.
- 40 U.S. Code § 3131 — Bonds of contractors of public buildings or works. Legal Information Institute, Cornell Law School, reproducing 40 U.S.C. § 3131; §3131(b) Type of Bonds Required — performance bond and payment bond. Version: Pub. L. 107–217; Pub. L. 109–284. Accessed 2026-09-16.
- 28.102-1 General. Federal Acquisition Regulation / Acquisition.gov; 28.102-1(a)–(c). Version: FAC 2026-01, effective March 13, 2026. Accessed 2026-09-16.
- Surety Bonds. Chubb; Construction Surety Bonds (performance, payment, maintenance); Commercial Surety Bonds (license and permit, court, commercial contract). Accessed 2026-09-16.
- Surety Bond. Travelers; Surety bonds provided by Travelers: Bid, Performance and Payment; Commercial surety; Contract surety. Accessed 2026-09-16.
- Surety Bonds Insurance. Harper; What is Surety Bonds insurance?; A bond is not insurance; License & permit bonds; Contract bonds — bid, performance, and payment; Is a bond the same as insurance? Accessed 2026-09-16.