Surety Bond: Definition FAQ’s

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What is a surety bond?

A surety bond is a contract between three parties – the principal, the obligee, and the surety. The principal requires the services of someone, for example, to complete work on their property or to install security equipment. The obligee agrees to pay for these goods or services once they are satisfied. 

If this does not happen, then the surety will step in to ensure that payment is made. The three parties enter into an agreement that essentially makes them all responsible for ensuring that payment is made if it needs to be. Without insurance products like this available, many small businesses would struggle with financial issues caused by slow-paying clients and debts owed because of late payments.

Some bonds may be required under the law while others might simply be required by a company or individual that has other demands on their money. For example, accepting credit card payments could put the merchant (the principal) at risk of chargebacks. 

If they are not careful to watch for this and act promptly, it can cost the business financially. A bond might therefore be required by the credit card processor as additional security against non-delivery or warranty issues.

What is an obligee?

An obligee is a person to whom another party has an obligation.

In consumer contracts, an obligee is often called a creditor. An obligee may also be referred to as a payee or endorsee in certain circumstances; however, these terms will not be used in this article. The terms obligee and creditor generally refer to the same thing: a “person who requires that something should be done such as paying back money borrowed or returning goods.

Obligee is a term used to refer to the person who receives an action or benefit from a contract under a binding obligation. An obligee is also referred to as a beneficiary. A typical example of an obligee is an individual receiving child support from another party under the terms of a court order.

An obligee is a person who receives action or benefits from a contract under a binding obligation. A typical example of an obligee is an individual receiving child support from another party under terms of a court order. An obligee is also referred to as a beneficiary. 

What is a fidelity bond?

A fidelity bond is a type of insurance policy that provides coverage for losses resulting from acts of fraud or dishonesty on the part of employees who handle cash or valuable items. This is not an insurance policy that protects against losses arising from general risks such as fire, theft, or collapse. You can think of it as a de facto warranty against employee dishonesty.

A fidelity bond is also known as “key person’s” insurance and serves as protection to those who rely upon the honesty and integrity of others in order to conduct business, including owners, partners, key managers, etc. A form that lists all persons associated with the company should be prepared by the insurer along with the application for this type of coverage.

The fidelity insurance policy is designed to protect the insured from loss resulting from acts of misrepresentation or wrongful conversion committed by employees who handle cash, negotiable instruments, securities, or valuable papers and documents. It also protects against loss caused by dishonest acts committed by persons in a position of trust requiring access to these items.

What is an indemnity agreement?

An indemnity agreement refers to a contract by which one party agrees to protect another against possible losses arising from legal cases. In this agreement, one party agrees to assume all costs and responsibility for the legal case. 

For example, a company might agree to indemnify its employees against lawsuits filed by clients or customers. This arrangement allows an employer to protect themselves from incurring expenses due to the actions of their employees while also shielding their staff from unfair liabilities.

Indemnity agreements can be written into employment contracts in order to protect both parties involved. The company would receive protection from being sued because of their employee’s conduct while the employee gains peace of mind knowing that any legal costs arising from events they were involved in would not affect them personally. 

What is a trustee?

A trustee is someone who has been given the responsibility to take care of property or assets for another, according to Investopedia. The person who gives the responsibility is called a donor and the person who receives it is called a beneficiary.

One who holds and manages property for another’s benefit. In a trust relationship, a trustee may have a fiduciary duty of due care and loyalty under New York law. A trustee is generally required by law to act prudently and must exhaust all assets before returning them to the beneficiary of the trust. The person actually handling day-to-day affairs of an estate, small business, etc., may be referred to as the “trust manager”.

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