In an effort to help consumers better understand the niche surety industry, Insider contributors have created a seven-part series answering the most popular surety questions. In Part 4, we’ll be dig into why bonds are required.

Why do I need a surety bond?

Surety bonds are required to guarantee compliance with certain terms or agreements and provide financial restitution for any losses or damages.

More specifically and to answer this question more comprehensively, you must be aware of the kind of bond that is being required of you, because each of the many types of bonds serve a different purpose. To get a better of idea of a few general bonds and why you might need them, let’s take a look at the four main bond categories from SuretyBonds.com:

• License and Permit Bonds: These bonds fall in the realm of commercial bonding and are required by government agencies so that licensing for certain industries can be regulated. License and Permit bonds protect consumers by guaranteeing that principals will adhere to all applicable rules and regulations.

• Contract Bonds: Contract bonds guarantee that projects are completed according to the terms established by the contract. If the contractor fails to complete the agreed upon work according to the contract, then the project owner may claim against the bond to recover any financial losses. Though used in other industries, these bonds are typically associated with the construction industry.

• Commercial Bonds: Commercial bonds are required of companies and working professionals that require bonds unrelated to legal issues or construction projects. These bonds serve a variety of purposes such as ensuring the payment of taxes and allowing new titles to be issued for vehicles when the original title has been lost.

• Court Bonds: Court bonds are generally required in order to ensure that the principal’s conduct is in line with what is expected of them, in the courtroom or otherwise. For example, a VA  bond ensures that the principal appointed as the fiduciary carries out their duties ethically and honestly. If a court bond is claimed against, it removes the risk of financial loss suffered by those whom the principal has wronged.

Answering the question, “Why do I need a surety bond?” really just depends on the type of bond you need but generally speaking, it serves as a form of a guarantee in one way or another.

Questions about contract bonds specifically? In the next part of our FAQ series, we will be taking a closer look to better understand these complicated bonds.