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Bonds
Glossary of Terms
Suretyship — Suretyship is where one party
guarantees the commitments of another. Those commitments are normally in the
form of a contract to perform a service or comply with an obligation.
Corporate Surety — A corporation licensed under various
insurance laws to act as surety for others.
Surety Bond — The
contract of suretyship. It guarantees that one party, the surety, obligates
itself to a second party, the obligee, to answer for the default of a third
party, the principal.
Treasury Limits — Qualifying limits
imposed upon surety companies by the Treasury Department. To be an acceptable
source for government bonds, the surety must qualify financially under the
regulations of the Treasury Department, and be included on a list it maintains.
Principal — The individual who is bound on a bond furnished by
a surety company; i.e., in a contract bond, the principal is the contractor.
Obligee — The party protected by the bond against loss. An
obligee may be a person, firm, corporation or government agency.
Underwriting — The act of analyzing and accepting or rejecting
risk in a specified amount on behalf of the surety company.
Indemnity — An agreement between the principal and the surety
that guarantees the principal will protect the surety from all losses, costs
and legal fees, and will reimburse the surety any monies paid out on their
behalf.
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