How Did Surety Bonds Come About?

May 9, 2009

Have you ever wondered where surety bonds began? A surety bond is an agreement of guarantee that’s issued by an organization on behalf of a service provider. The guaranteeing organization is a third party that will make sure that the commitments made by the service provider to the consumer will be fulfilled.

The guaranteeing company that issues the bond is called the “guarantor” and the service provider is called the “principal”. The person who hires the service provider is the “oblige” and they are protected by the bond. Unlike insurance, where the person who purchases insurance is the beneficiary of the policy, the beneficiary of the bond is the person who hires the purchaser of the bond.

Surety bond policies have been around for quite some time. They were used centuries ago to encourage long distance trading. The first organization formed specifically to provide surety bonds was United States Fidelity and Casualty Company of New York. They were formed in 1880.

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Filed Under Business Tips, Finances