Surety Bond Definitions And Meanings

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Surety Bond Definitions

Surety Bond Definitions And Meanings

Surety Bond Definitions And Meanings. This page provides a glossary of insurance terms and definitions used with surety and other types of bonds issued by insurance companies.

Bonding is a specialized activity with its own set of procedures, contracts, and other documents that involve using numerous words and concepts not regularly used every day. The surety bond definitions include terms used in bonding, surety, and crime insurance coverages.

We wanted to provide reference for surety bond definitions and terms to help our readers get a better understand of the bonding with the Surety Bond Definitions And Meanings.

Read surety bond definitions and meanings to better understand bonding and its terms & vocabulary.

Below are the most common surety bond definitions:

What Is The Definition Of A Surety Bond?

Surety Bond

A surety bond is a contract where one party, the SURETY (who assures the obligee that the principal can perform the task), guarantees the performance of certain obligations of a second party, the PRINCIPAL (the contractor or business who will perform the contractual obligation), to a third party, the OBLIGEE (the project owner who is the recipient of an obligation).

The surety bond guarantees that the principal completes all contractual obligations to the obligee - and if the principal doesn't fulfill the obligations, the surety is responsible for paying to fulfill the obligation.

What Is The Definition Of A Commercial Surety Bond?

Commercial surety bonds ensures that licensed businesses will comply with all required state and municipal codes - and are commonly required for licensed professionals. Examples of commercial surety bonds include: court and fiduciary, appeal, tax appeal, self-insurer workers compensation, license and permit, reclamation, lost instrument, utility payment, service and supply, business services, public official & other miscellaneous bonds.

What Is The Definition Of A Contract Surety Bond?

Contract surety bonds ensures the obligations of a construction contract will be fulfilled - and are commonly used for commercial real estate projects. Examples of contract surety bonds include: bid bonds, payment bonds, performance bonds, supply bonds, maintenance bonds & subdivision bonds.

What Is The Definition Of A Court Surety Bond?

Court surety bonds ensure protection from loss in the case of a court proceeding and might be required during court proceedings. Examples of court bonds include: appeal, attachment, plaintiff, injunction, trustee, custodial or guardianship, probate or executor, cost, indemnity to Sheriff and many others.

What Is The Definition Of A Fidelity Surety Bond?

Fidelity surety bonds protects businesses and their customers from employee theft and the resulting losses caused by the dishonest acts of its employees. Examples of fidelity bonds include: business services, employee dishonesty & ERISA.

Surety Bond Definitions, Dictionary And Glossary

Types Of Surety Bonds

Following are bonding terms and definitions used with common types of surety bonding including:

Commercial Surety Bonds

Contract Surety Bonds

Court Surety Bonds

Fidelity Surety Bonds

And other types of bonds issued by insurance companies - listed in alphabetical order:


accounting methods - Either of two methods of accounting for construction and building contractors, both of which are realistic and preferred by surety companies. They are the completed contract method and the percentage of completion method.

administrator - A fiduciary appointed by a probate court that manages or distributes the assets of an estate and pays its legitimate claims and debts if there is no will or trust. See executor.

administrator de bonis non - A person appointed by a probate court as a successor to an administrator who can’t administer an estate due to death, resignation or duty termination.

admitted company - An insurance or surety company licensed to do business in a particular state.

aggregate liability clause - A third party license bond clause. It limits the surety’s liability to the bond penalty, regardless the number of bond claims.

alcohol bond - A general term for a bond issued to comply with either federal or state laws or regulations governing the sale, manufacture or warehousing of alcohol. When the alcohol is intended for use in beverages, the bond may be referred to as a liquor bond.

all or none - A bond sale that involves the sale of an entire block of bonds (no partial sales).

appeal bond - A bond filed in court by a defendant against whom a judgment has been rendered. It is intended to suspend or delay execution of the judgment until an appeal to a higher court, with the intent of reversing the judgment against the defendant, is heard and a ruling issued.

application - A questionnaire that provides required information concerning the party requesting a bond written on its behalf. It describes the type and nature of the bond requested, indicates the applicants promise to pay the bond premium and includes the applicant’s agreement to indemnify the surety in the event of default.

assets - All funds, property and securities, including the real or personal property of an estate.

attachment - The legal taking possession of the property of a defendant when its ownership is disputed.

attorney-in-fact - One that holds a power of attorney granted by a surety company and empowered to execute a surety bond. See power of attorney.

audited statement - A public accountant report that certifies, with limitations, that a set of financial records are sufficiently accurate.


bail bond - A bond provided by an individual accused or convicted of violation of a law or ordinance to secure release from custody or liberty. It also guarantees that the individual will appear in court at the time set for the trial.

bank confirmation letter - An agreement under which one financial institution confirms (guarantees) a letter of credit issued by another financial institution.

bank depository bond - A bond that guarantees the deposit of public funds.

bankruptcy trustee bond - A bond that assures the beneficiaries of a bankruptcy action that the court-appointed and bonded trustee will perform its duties in accordance with the rulings of the court.

bid bond - A bond that guarantees that a contractor will enter into a contract if its bid is successful and it is awarded the project. It also guarantees issuance of all required contract bonds in accordance with the terms of the contract.

blanket bond (financial institutions) - A bond issued to bankers, brokers, savings and loan associations and others in the financial services field. These are broad contracts covering losses of property caused by dishonest acts of employees and also burglary, holdup, damage, destruction and other defined causes.

blanket fidelity bond - This bond covers the loss of money, merchandise or property that an employer owns, has a financial interest in or has in its possession, when such loss is due to employee dishonesty.

blanket position bond - A bond that guarantees the honesty of each employee in the operation described for the position and amount indicated on the bond.

blanket position public official bond - A bond that covers each employee of the public entity who occupies a position listed on the bond for the amount indicated.

blanket public official bond - A bond that covers the employees of a described public entity for the amount indicated on the bond.

blocked accounts - Refers to estate assets that the applicable estate’s fiduciary can only gain access via a court order.

blue sky bond - A bond required of securities dealers that indemnifies purchasers of securities from the dealer against loss in the event of false representations, such as an illegal inducement to purchase. Many states have laws that regulate the sale of securities known as blue sky laws. These laws prohibit the sale of worthless securities in the state.

bond - A guarantee of performance or an agreement where one party, the surety, obligates itself to a second party, the obligee, to answer for the default of a third party, the principal.


capacity - The highest bond amount or limit that a surety can write.

cancellation clause - A bond provision that allows a surety to terminate its future bond liability by delivering a written notice to the obligee.

co-fiduciary - A person who jointly performs the duties of a fiduciary along with another party.

collateral - Anything of value pledged with the surety to secure it against loss through default of the principal that supplies the collateral.

collusive loss - Any loss caused by embezzlement or misuse of funds by one dishonest employee acting in concert with one or more other dishonest employees.

combination crime plan - A commercial crime insurance program that had a combination of different coverages and was available under the simplified commercial crime insurance policy. It replaced the blanket crime insurance policy and the comprehensive dishonesty, disappearance and destruction policy.

completion bond - Refers to a bond that covers performance of a construction project. It protects a party that, due to stipulated reasons, is unable to finance the completion of a project except by using the bond’s payment feature.

compliance bond - A common form of license and permit bond required by government entities. They guarantee that a person or business will conduct a business or profession in conformity with all applicable laws, ordinances, or regulations.

computer fraud - The theft of property following, and directly related to, the use of any computer for fraudulent purposes. It causes a transfer of property from inside the insured's premises or from a banking institution's premises to a person other than a messenger or to a place outside those premises.

construction contract bond - A bond that guarantees the faithful performance of a construction contract. It is an agreement between three parties: the contractor as principal, the owner as obligee and the surety.

contract - A written agreement between two or more legally competent parties to perform or do or to not perform or do a certain thing or things.

contract bond - A bond that guarantees the performance of a contract according to its terms.

contract price - All sums of money that pass from the owner of a project to the contractor on that project at the time of the final settlement between them, based on the performance of the contract.

contractor default - Failure on the part of a contractor to complete work specified in the contract because of one or more causes or events that effectively breach the contract.

corporate surety - A surety structured as a corporation. It is licensed under various insurance laws and has the legal power and authority under its charter to act as a surety for others.

co-surety - One of a group of two or more sureties directly participating together on a bond, the obligation of each being joint and several.

co-suretyship - An established procedure where two or more surety companies become joint sureties on a bond.

court bond - Any of a number of types of bonds or undertakings required of litigants in a lawsuit or legal action that enables them to pursue any legal remedies available to them as a result of a final court decision.

cumulative liability - The situation that occurs when one bond is cancelled and another issued to take its place by the same surety. If the cancelled bond has a discovery period, the surety may be exposed to the possibility of a loss equal to the total limits of the two bonds.

custodian - Any insured, partner or employee of the insured having care and custody of the insured’s property when it is inside the premises. Watchpersons or janitors are not custodians.

customs bond - Any bond intended to guarantee payment of any and all import duties and taxes. These bonds guarantee compliance with all regulations governing the entry of merchandise into the United States from foreign countries or sources.


defalcation - This is a term used in connection with employee dishonesty. It means to misuse or embezzle funds and is generally used in association with personnel of financial institutions.

defendants bond - This is a bond given by a defendant in litigation that enables it to retain or regain possession of its property, pending the outcome of a suit. It also suspends execution of a court judgment, order or decree while the defendant appeals and seeks reversal of an unfavorable judgment in a higher court.

deferred premium payment bond - See retrospective plan bond.

depository liability - The liability of a public official as an insurer of public funds deposited in a bank that cannot be paid out or released because of the failure or insolvency of the bank.

discovery period - A provision that appears in certain bonds and policies. It gives the insured a specific period of time after cancellation or expiration of the bond or policy to discover a covered loss that occurred within the policy term that would have been recoverable if the bond or policy had continued in force.

dishonesty insurance - A generic term that describes fidelity or employee dishonesty coverage that covers losses caused by dishonest acts committed by employees of a commercial enterprise or financial institution or similar acts committed by public officials or government employees.


earned premium - The portion of the bond premium that compensates the surety for the protection provided for the expired portion of the term of the bond.

embezzlement - The taking of money or property for one's own use in violation of a trust. It is a term usually associated with employees and public officials.

Employee Retirement Income Security Act of 1974 - Also known as ERISA, it is the legislation that requires posting of a bond with a limit equal to ten percent of the accumulated value of an employer's pension and profit sharing plans.

errors and omissions Insurance - A form of professional liability insurance which provides coverage for mistakes made by a person or persons in a profession not involved with the human body, such as lawyers, architects, engineers, or for mistakes made in a service business, such as insurance, real estate, and others.

evaluator - An independent individual or firm that establishes the value of a given portfolio’s security.

excess insurance - A bond or policy that applies only to loss or damage above a certain stated amount or primary bond or policy.

exclusion - A provision in a bond that refers to a hazard or property to which coverage does not apply.

executor - The fiduciary named in a will or trust responsible for managing or distributing the assets of an estate and paying all legitimate claims and debts against it. See administrator.

experience - The loss record of an insured or a class of bond or coverage.

extortion - The illegal use of one's official position or powers to obtain property, funds or patronage. It is also any threat communicated to an insured or an employee or officer of the insured requiring the surrender of money or property in exchange for preventing harm to persons or damage to property.


facultative reinsurance - Reinsurance placed by a surety on an item-by-item basis and accepted by the reinsurance company only after individually evaluating each item or subject of insurance. It gives both the primary insurer and the reinsurer the option of accepting or rejecting the coverage or exposure offered.

federal bond - A grouping of license and permit bonds, including immigration bonds, internal revenue bonds and customs bonds.

federal official bond - A bond in which the surety guarantees that the principal, a federal official, will faithfully perform the official duties of the office and will be responsible and accountable for all funds entrusted to his or her care.

fidelity bond - A bond that reimburses an employer as the named insured for loss or damage sustained as a result of the dishonest acts of a covered employee up to the limit or penalty amount of the bond.

fiduciary - A person who handles the affairs or funds of another and who occupies a position of special trust and confidence.

fiduciary bond - A bond issued on behalf of persons named as fiduciaries in a will or appointed by a court to manage the affairs of others. Examples are decedent's estates, wards, incompetents and minor children.

financial institution bond - Bonds that provide a number of coverages, including employee dishonesty, burglary, hold-up, messenger robbery, and other specific coverages. The type of financial institution determines the coverages available under the bond.

financial statement - The profit and loss statement and balance sheet for the party applying for coverage that is required by the surety. It reveals the financial condition of the applicant for a given period or at a specific point in time.

fixed penalty bond - A bond in which the limit or amount payable is expressed in terms of a certain amount of money.

forgery - Any false writing with intent to defraud.

forgery bond - A bond coverage where the insurance company or surety indemnifies the named insured for loss or damage it sustains due to a forgery of specific instruments, documents or certain securities.

funds control - Oversight by a contractor or owner of the financial affairs and cash flow of financially weaker contractor on a bonded project to ensure that subcontractors and suppliers are properly compensated for their work on a timely basis.


government sponsored enterprise - Any financing entity created congressionally in order to support loans to specified borrowers.


hazard - A term applied to certain conditions that create or increase the probability of a loss because of a given covered peril.

holdover public official - There are two types of holdover official. One is a public official who has been elected or appointed to succeed himself or herself in the current office. The second is the official who continues in office beyond the limit of his or her term while awaiting election or appointment of his or her successor.

honesty insurance - A generic term that describes fidelity or employee dishonesty coverage that covers losses caused by dishonest acts committed by employees of a commercial enterprise or financial institution or similar acts committed by public officials or government employees.


immigrants bail bond - Bonds issued to release an immigrant who is under investigation by Homeland Security Department from detention. The bond requires that the obligee guarantee that the immigrant will not become a public charge and will appear as required by the Department.

income tax bond - Bonds that guarantee payment of federal income taxes due or claimed to be due. They are direct financial guarantees that usually require collateral.

indemnify - To compensate for damage, loss or injury suffered or for an actual loss sustained.

individual bond - A type of surety bond that guarantees the performance of certain individuals involving a broad range of property for which they are responsible. The categories include individual, name schedule, position schedule and public employee blanket bonds and public school system employee blanket bonds. See public official bond.

injunction-plaintiff’s bond to secure - Refers to a bond that a plaintiff seeking an injunction is required to provide. It reimburses a defendant if, later, it turns out that an injunction should not have been granted.

injunction-defendant’s bond to dissolve - Refers to a bond that will pay for damages suffered in the event an injunction has been lifted and the, previously, restricted activity, causes financial harm.

insurance - A mechanism that contractually shifts burdens of a number of pure risks by pooling them. It is the transfer of risk or chance of loss from one party to another where the insurance company promises to pay the insured an amount of money, services or both for unexpected losses from insured accidental events during a period of time in which the insured makes premium payments.

insuring agreement - The part of an insurance policy that describes the coverage provided.

internal revenue bond - One of a class of federal bonds guaranteeing that producers of distilled spirits and tobacco, among others, will comply with all applicable laws and regulations applying to the business and also pay all applicable taxes.


joint control - A term that applies to an estate under the legal and administrative guidance of both the surety and the fiduciary. Any actions on the part of the estate require the signatures of both in order to reduce the chances of fraud. It is also an agreement where both parties jointly supervise deposits and withdrawals of funds and securities.

joint venture - An entity formed under a written agreement by two or more legal entities for a specific purpose for a specific period of time. It can be a pooling of the financial resources and skills of several contractors to undertake construction contracts too large for them individually and that can also reduce costs and expenses.

judgment - The obligation created by a court’s ruling.

judicial bond - A type of surety bond that is either a fiduciary bond or a court bond. It is a general term applied to all bonds filed in a court.


labor and material payment bond - A bond given by a contractor that guarantees payment for the labor and material used in the work it is obligated to perform under the terms of the contract.

labor union bond - A bond required under the United States Labor Management Reporting and Disclosure Act of 1959. It contains provisions requiring that every officer, agent, shop steward or any other representative of a labor organization be bonded for the faithful discharge of all appointed duties, including the dishonesty hazard. Because of the passage and implementation of this Act, the Surety & Fidelity Association of America (SFAA) has standardized three separate labor organization bonds. See welfare and pension plans.

large deductible plans - Refers to a bond that reimburses an insurer for a policyholder that fails to pay the monthly/quarterly installments required for a large deductible plan insurance policy.

liability - Something for which one is liable, as in an obligation, responsibility or debt, or any legally enforceable obligation.

license and permit bond - License bonds guarantee compliance with various city, county and state laws that govern issuance of a particular license to conduct business. Permit bonds guarantee that a party licensed by a city, county or state agency will perform activities for which the bond was granted, according to the regulations governing the license.

limit of liability - The maximum amount an insurance company or surety pays in the event of a covered loss. Corporate suretyship uses the term bond penalty.

liquor bond - A general term for a bond issued to comply with either federal or state laws or regulations governing the sale, manufacture or warehousing of alcohol. If the alcohol is not intended for use in beverages, it is referred to as an alcohol bond. See alcohol bond.

long-term bond - A bond required of a fiduciary whose duties are normally expected to extend over a long period of time. See short-term bond.

loss ratio - Losses incurred expressed as a percentage of earned premium in most cases. However, written premium is used in some applications.

lost securities bond - A bond given by owners of valuable instruments, such as stocks, bonds, promissory notes and certified checks alleged to have been lost or destroyed. It is issued to protect the issuing company against losses that may result from the issuance of duplicate instruments or payment of their cash value.


maintenance bond - A guarantee against loss due to defective workmanship or materials used in the performance of a construction or supply contract.

manual - A book or series of books that contain rules and other information necessary to write and service insurance policies. Manuals contain rules, loss costs or rates, tables for additional or return premiums, deductible factors and minimum premium information and other information. For certain crime coverages, it is the manual of the Surety and Fidelity Association of America (SFAA).

manual rate - The premium dollar cost of a unit of insurance or bond protection as published in the rating manual of the Surety and Fidelity Association of America (SFAA) for bonds and by other organizations in the insurance industry for other lines of insurance.

messenger - The insured or any partner or employee of the insured having care and custody of the property outside the insured's premises.

Miller Act Bond - A performance, labor and material payment bond required by the Miller Act on federal work, as approved August 24, 1935 in accordance with U. S. Code, title 40, section 270a.

miscellaneous contract bonds - Any of a broad variety of surety bonds required to do work under other than construction contracts. Examples include supply contract bonds, trash and ash removal bonds, demolition and wrecking contract bonds and bonds for carrying United States mail.

miscellaneous indemnity bonds - Any of a number and variety of general and miscellaneous use bonds that do not fit any of the usual categories, divisions or subdivisions. The Surety and Fidelity Association of America (SFAA) manual contains detailed information concerning these bonds.

money - This is currency, coins and bank notes in current use having a face value and travelers checks, register checks and money orders held for sale to the public.

moral hazard - A circumstance that increases the probability of loss because of the insured's personal habits or morals, for example, if an insured is a known criminal. It is also the increased probability of loss caused or influenced by dishonesty or carelessness on the part of the insured where the intent is to profit from an insured loss.

moral obligation bond - A type of revenue bond where the issuer, due to a high incentive to maintain its creditworthiness, guarantees to make good on any shortfalls experienced by a bond issue.


name schedule bond - A bond that lists the names and amounts of insurance on each bonded individual usually listed on a separate policy schedule.

name schedule public official bond - A bond that lists the names and amounts of insurance on each bonded public officials, such as for a board or council. These officials are usually listed on a separate policy schedule.

notary public bond - A bond required by law to protect others against losses due to a notary's action or inaction.


obligee - The party for whom the bond runs or the party the bond protects against loss. The party in a surety bond contract to whom the right of performance or the obligation is owed.

obligor - The party also referred to as the principal. It is the one bound by an obligation covered by the bond or the party that promised to perform a certain act. Strictly speaking, in surety bonds the principal or obligor and the surety are both obligors, since the surety responds if the principal defaults.

open penalty bond - A surety bond with no maximum limit on the liability of the principal or the surety.

ordinance - A statute or regulation enacted by a city or town government.


payment bond - A bond guaranteeing that a contractor will pay fees owed for labor and materials necessary for construction of a project. See labor and material payment bond, Miller Act bond and performance bond.

penalty - The monetary size or limit of a bond.

Pension - Regular, post-retirement financial compensation received by an employee from an employer.

performance bond - A bond guaranteeing that a contractor will perform a contract according to all the specifications of the bid it submitted. It is usually associated with construction work and projects but can be used with most contracts.

personal surety - A surety bond or agreement furnished by an individual, as distinguished from one furnished by a surety company and usually referred to as a corporate surety. A personal surety is not normally subject to the same government regulations and oversight as a corporate surety.

plaintiff bond - A bond required by law guaranteeing that a plaintiff will pay any damages determined by a court. It is usually posted before lawsuit proceedings begin.

plaintiffs bond - A bond given by plaintiffs in litigation that enables them to exercise certain privileges with the permission of the court, such as attachments, injunctions and replevin, a legal proceeding for recovering specific personal property. See replevin.

policy - A formal written contract of insurance.

position schedule bond - A type of fidelity or public official bond that guarantees the honesty of those holding named positions in a business or government agency as opposed to bonds that name specific individuals. It includes a schedule of positions and the corresponding limit or penalty amount for each listed position.

power of attorney - A legal instrument in which an individual is given the right and authority to act on behalf of another individual within the terms and limitations of the agreement. In corporate suretyship, it is a sealed instrument that appoints an attorney in fact to act on behalf of a surety company for signing bonds. See attorney in fact.

principal - The party having the primary responsibility of performing the obligation. In suretyship, it is the party whose action, honesty or responsibility is guaranteed.

probate bond - A judicial type bond of a fiduciary nature. It guarantees that individuals in a position of trust will safeguard assets belonging to others placed under their control, such as guardians or estate administrators.

public official bond - A type of surety bond guaranteeing the performance of public officials. This applies to fees they collect, money they handle, bank accounts they oversee and misdeeds by others they supervise that result in the loss of public funds. The four categories involved are individual bonds, name schedule bonds, position schedule bonds and public employee or public school system employee blanket bonds.


qualifying limit - The largest net amount which a surety company may retain.

qualifying power - The largest net amount of risk that may be carried by a surety company on a bond. See treasury listing.


rate - The price for a unit of insurance. All units in a policy multiplied by the rate for each unit produce the premium.

rate manual - A publication listing the premiums to be charged for the products sold by an insurance company. An example is the manual of fidelity, forgery and surety bonds by the Surety and Fidelity Association of America (SFAA).

rating - The grade which indicates a security’s creditworthiness. They are assigned by independent rating services.

reclamation bond - A bond guaranteeing that a person or entity, usually a contractor, will restore a project's land to its original state when the project is finished.

reinsurance - A transaction or a form of insurance that surety companies purchase for their own protection. In return for a premium consideration, the reinsured surety reduces its maximum possible loss on either an individual facultative reinsurance basis or on an automatic or treaty reinsurance basis covering a large number of risks by giving or ceding a portion of its liability to another insurance company, the reinsurer.

reinsured - This is the surety company that reduces its maximum possible loss on an individual risk or a large number of risks by placing part of its liability with another company in return for a premium consideration.

reinsurer - The insurance company that assumes all or part of a bond written by a primary or ceding surety company.

replevin - An action or legal proceeding to recover personal property taken or claimed to have been taken illegally.

retainage - Money or funds provided by a contractor to a project owner or by a subcontractor to a general contractor as a good faith gesture when a bid is made. It is also money or funds the contractor or project owner withholds from progress payments. It is held in escrow until the job is complete and then returned to the contractor or subcontractor.

retroactive restoration - The provision in an insurance policy or bond that automatically reinstates the original amount of insurance after payment of a covered loss. This provides coverage for previous losses not yet discovered as well as for future losses.

retrospective plan bond - An insurance program bond with a final premium payment that is determined by evaluation of incurred losses along with application of an administrative charge.

rider - A term used in bonding that refers to an endorsement to a bond that modifies policy clauses and provisions, usually by adding or excluding coverage.

risk - The uncertainty of financial loss, the term used to designate an insured or a peril insured against in an insurance policy or bond.

robbery - The unlawful taking of property of another by force or violence or by the threat of force or violence.


safe burglary - The taking of covered property from within a locked receptacle, safe or vault inside the insured location or premises, with visible marks of forced entry appearing on the outside of the receptacle, safe or vault.

salvage - That portion of goods or property saved or remaining after a casualty, such as a fire or another type of loss. In suretyship, it is the amount recovered from the principal or an indemnitor to offset the loss and expenses paid by a surety in satisfying its obligation under a bond, in whole or in part.

SBA - The Small Business Administration. It is a government entity that sponsors programs to assist small businesses and minority contractors to secure surety bonds.

securities - Any of a number of negotiable and non-negotiable instruments or contracts representing either money or other property. It includes tokens, tickets, revenue and other stamps, whether represented by actual stamps or unused value in a meter in current use. It also includes evidences of debt issued in connection with credit or charge cards for cards not issued by the insured.

self-insurer retention plan bond - A type of insurance program bond commonly used as an alternative insurance device when general liability or workers compensation coverage is either unavailable or its premium cost is prohibitive.

short-term bond - This is a bond covering fiduciaries whose duties include collecting assets of a decedent, paying legitimate debts and distributing any remaining amounts. The amount of time these fiduciaries serve is usually brief, as suggested by the name of the bond. See long-term bond.

statutory bond - Any of a number of surety bonds that laws or statutes require of government contractors, licensed businesses, litigants, fiduciaries, government officials and others whose performance of some duty or obligation must be assured in the public interest. These bonds are required to provide the terms and liability imposed by the law or statute on the principal and the surety.

subcontract bond - A bond usually required by the general contractor of a subcontractor guaranteeing that the subcontractor will perform the subcontract in strict compliance with its terms. It usually also specifies that the subcontractor will pay for certain labor and material costs incurred in performing the subcontracted work.

subdivision bond - A bond required of a subdivision developer guaranteeing that it will construct or finance improvements such as streets, sidewalks, curbs, gutters, sewers and other drainage facilities.

subrogation - The substitution of one party, the surety company, for another party, the obligee, to pursue any rights of recovery the obligee may have against a third party responsible and liable for a loss paid by the surety company.

superseded suretyship rider - An endorsement to a fidelity bond or a surety bond that covers losses that occurred after the end of the discovery period of the previous bond. Coverage is limited to the limit or amount provided by that previous bond.

supply bond - A bond between a supplier and a purchaser guaranteeing that the supplier will furnish supplies or materials as specified in a contract. If the supplier defaults on the terms of the contract, the surety will indemnify the purchaser of the supplies or materials against any loss sustained as a result of the default.

surety - The guarantee given for fulfillment of an obligation, the person or organization that guarantees fulfillment of an obligation or the underwriter that guarantees something in the coverage of a bond.

Surety & Fidelity Association Of America (SFAA) - The Surety & Fidelity Association Of America is an association whose membership is composed of insurance companies that write fidelity and surety business. Its primary purpose is to serve as a form, endorsement and ratemaking organization for its member companies. It develops and publishes forms, endorsements and manuals, collects and distributes statistical data, develops rates and rating tables and engages in educational activities.

surety bond - A written agreement where one party, the surety, obligates itself to a second party, the obligee or beneficiary, to answer for the default of a third party, the principal, for its failure to perform specified acts within a stated time. The obligations include payment of debts and responsibility for defaults.

surety's right of exoneration - The right of recourse against the principal for reimbursement of expenses incurred by the surety in the performance of its obligation after performing its obligation.

suretyship - The acts and functions of being a surety. The term embraces all forms of obligations to pay the debt or to answer for the default of another party.


term - The period of time for which a bond is written.

theft - The popular term for larceny or stealing. It is any wrongful taking of property without the consent of its owner.

three Cs - The critical and traditional underwriting considerations evaluated by all surety underwriters. They are Character, Capacity and Capital.

tranch - A, typically, large group of mortgage contracts with a similar level of default risk.

treasury listing - The qualifying limits imposed on the surety by the United States Treasury Department. Acceptable sureties on bonds written in favor of the United States must qualify financially under treasury department regulations. Every year, that department produces a list of qualified surety companies, the underwriting limits capacity of each, the states in which each company is licensed to operate and other data. The underwriting limits capacity is frequently referred to as the qualifying power, equal to 10% of the combined capital and surplus of the surety. See qualifying power and United States Treasury Department.

treaty - A reinsurance agreement between a surety company and a reinsurer. The term of the agreement is usually one year or longer and consists of one of two broad classifications. Participating treaties provide for sharing of risks between the ceding company and the reinsurer. Excess treaties provide for indemnity by the reinsurer only for losses that exceed a specific predetermined amount.

trustee - A person appointed to manage the finances of another party with respect to dealing with that other party's creditors.


undertaking - Refers to an agreement between a surety and an oblige in which a principal is not named and under which an obligee can demand payment first and directly with the surety.

underwriter - An employee or an authorized representative of a surety company who accepts or rejects risks on behalf of that company and determines the coverages, limits and terms to apply.

United States Treasury Department - A federal agency that evaluates surety companies and produces an annual list of companies qualified to write bonds in favor of the United States of America. See treasury listing.

unsecured bond - A bond issue which is not supported by collateral.


Value Line Investment Survey - A quarterly report that provides synopses of company operations and financial trends on large, publicly traded companies that, primarily assists investors.


Welfare and Pension Plans Disclosure Act - A federal law that requires pension plan administrators having more than 25 participants to disclose and file a description of the plan with the United States Department of Labor. It was replaced by the Employee Retirement Income Security Act (ERISA) in 1974.

work-on-hand reports - A financial document and list that tracks the progress of a contractor's current and on-going projects.

workers compensation self-insurers bond - A bond used to comply with laws related to workers compensation financial responsibility requirements. It guarantees payment of compensable employee claims.

Surety Bond Definitions And Meanings - The Bottom Line

We hope that the surety bond definitions and meanings helps you to better understand the many bonding types available for your business. To find out what types of bonds your business needs, speak to a professional insurance broker with experience in bonding businesses like yours.

Frequently Asked Questions By Industry

Learn about the insurance coverages and surety bonds available for specific industires with the Insurance FAQs below:

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