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Frequently Asked Questions

1. What is a bond?
2. What is the difference between a surety bond and insurance?
3. What is the difference between the Principal and the Obligee?
4. Who benefits from the surety bond?
5. Is there a general surety bond that covers everything?
6. What are the types of Commercial Surety Bonds?
7. How do I know what type of bond I need?
8. Who determines the bond limit?
9. What is the cost of the bond?
10. How are premiums calculated?
11. How long does a bond remain in effect?
12. Can a bond be cancelled?
13. Can I get a refund under the bond?
14. Is tax applicable to Commercial Surety Bonds?
15. Who is responsible for payment of the premium under the bond?
16. What is an Indemnity Agreement?
17. What is the surety's prequalification based on?
18. What are the benefits of a surety bond vs. other forms of security?
19. What is the turn-around time in getting a bond?
20. I don't have an Insurance Broker. Can you recommend one?

1. What is a bond?
   A surety bond is a 3 party agreement between the applicant (the Principal), Obligee (the party requesting the bond) and the Surety Company. The Surety guarantees the applicant's performance and financial obligation to the Obligee.
2. What is the difference between a surety bond and insurance?
   A surety bond is not insurance. Insurance is a 2 party agreement between the insured and the Insurance Company.
3. What is the difference between the Principal and the Obligee?
   The Principal is the applicant seeking the privilege under the bond and the Obligee is the party requesting the bond.
4. Who benefits from the surety bond?
   The Obligee is often a government body under the bond. The bond is typically legally required and necessary for consumer protection.
5. Is there a general surety bond that covers everything?
   Bonds respond to specific obligations and laws.

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6. What are the types of Commercial Surety Bonds?
   There are many. The most common are: License & Permit Bonds, Customs & Excise Bonds, Estate Bonds and Lost Instrument Bonds.
7. How do I know what type of bond I need?
   The Obligee will advise you.
8. Who determines the bond limit?
   The Obligee determines the bond limit.
9. What is the cost of the bond?
   The surety charges a service fee for their prequalification; the cost of the bond is cost effective and usually cheaper than insurance premiums and Letter of Credit.
10. How are premiums calculated?
    Premiums are based on the bond limit, subject to minimum premiums which are fully earned.

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11. How long does a bond remain in effect?
    Typically bonds are in effect for the duration of the requirement.
12. Can a bond be cancelled?
    In most cases a written request to cancel a bond is acceptable. There are exceptions. E.g. Estate Bonds.
13. Can I get a refund under the bond?
    Refunds are based on a pro-rata basis; however minimum premiums are fully earned.
14. Is tax applicable to Commercial Surety Bonds?
    No.
15. Who is responsible for payment of the premium under the bond?
    The Applicant (Principal) is responsible.

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16. What is an Indemnity Agreement?
    A legal and binding contract between the Applicant (Principal) and the Surety Company. The Applicant and Indemnitor(s) guarantees to reimburse the Surety Company if there is a loss it many sustain on its behalf, which includes payment of the bond premium.
17. What is the surety's prequalification based on?
    The surety requires a bond application and will evaluate the applicant's financial position, character and capacity.
18. What are the benefits of a Surety Bond vs. other forms of security?
    Other forms of security tie up the applicant's money; surety bonds do not and surety bonds are cost effective.
19. What is the turn-around time in getting a bond?
    Three days is the typically the turnaround time; however, this is dependant on the type of bond and on whether or not the surety has all the underwriting information they require.
20. I don't have an Insurance Broker. Can you recommend one?
    Please see our list of insurance brokers that will be able to assist you.

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Contact The Guarantee Company of North America's local office closest to you for further information or clarification