Construction and Surety

You are here: Home / Insurance Services / Commercial Insurance / Construction and Surety

What Is Surety Insurance?

Surety insurance is a term that refers to an individual or corporation that purchases a surety bond. A surety bond is similar to insurance in which a guarantee is provided. However, a surety bond involves three parties, instead of two parties as is common with a standard insurance policy.

When an agreement is written for a surety bond, the surety obligates itself to an obligee to provide protection against the default of the principal. The surety provides the financial guarantee for any claims that occur.


A bond is not the same as a typical insurance policy because it is a form of credit that is extended to the person who obtains the bond. A surety bond requires no collateral, which frees up needed capital for a business. However, the cost of the bond can vary because the same rate is not applied to each business that applies for a bond. This is because a business can be in a standard category with normal rates or a high risk category with higher rates.

Obtaining a Surety Bond

A surety bond can be obtained by an individual or company be completing an application from an insurance company or bonding company that is providing the bond. Once the application has been completed, approval generally takes one or two days. When a bond has been approved, the premium cost of the bond and the agreement with the bonding agent or company will be provided. Bonds come in different types that range from contract surety bonds to commercial surety bonds.

Surety Bond Process

The principal that was required to purchase a bond pays a bond premium, which is a percentage of the bond amount. The normal cost can range between 1 percent to 2 percent of the total cost of the bond. Once the payment has been received, the surety will extend surety credit to guarantee the bond. When a claim is filed for a bond, the surety will investigate the claim. If the claim is found to be valid, the principal will be required to pay the claim and any legal fees that apply.

Benefits of Surety Bonds

Surety bonds are critical for all parties that work in several businesses, especially those that work in construction. An insurer or bonding company will verify the source and adequacy of funds before issuing a bond for a project. A surety will also review contracts to make sure there are no conditions, requirements or oversights that can threaten a project.

Contract Surety Bonds

A contract surety bond provides financial security and assurances to construction project owners that a contractor will perform all of the required work. There are various types of contract bonds that can be purchased which includes performance bonds and payment bonds. A performance bond protects a project owner when a contractor fails to meet a contracts obligations. A payment bond guarantees that a contractor will pay additional project costs such as subcontractors and suppliers.

Contact one of our Tannas Insurance Representatives for more information about Surety Bonds and Construction Insurance 866-645-2901


Tannas Insurance Brokers Inc.
4902 50th Street
St. Paul, Alberta T0A 3A0

Local:            780-645-2901
Toll Free:      866-645-2901
Fax:               780-645-3637

Email Us