Surety BondsStening Simpson Industry Leaders in Global Surety Bonds. For over 43 years Stening Simpson has been at the forefront of the Surety Industry setting the benchmark.
Misconceptions about Surety Bonds
Misconception – “A surety bond is an insurance policy.”
Surety Bonds provide protection to the principal of a contract against the default of the contractor. A Surety Bond is an undertaking by an independent third party to the beneficiary that the contractor will perform in accordance with the terms and conditions of the contract; hence a Surety Bond is a three-party contract. The contractor requests the surety to issue the bond in favour of the principal. The contractor pays the premium for the Surety Bond but is not the beneficiary of the bond.
Misconception – “Surety Bonds don’t have the same obligations as a bank guarantee.”
Surety Bonds carry an identical wording as a bank guarantee and follow the Australian Standards templates, such as AS2124 and AS4000. Surety Bonds carry exactly the same obligations at law as bank guarantees. Sureties cannot call their product a bank guarantee, as they are not a registered bank, otherwise the products are identical.
Misconception – “Insurance companies aren’t as secure as banks”
Insurance companies offering Surety Bonds carry an A+ Standard & Poor’s Credit Rating and are APRA approved.
Misconception – “It’s more difficult to make a claim on a bond.”
The payment must be made by the surety on demand, without any assessment as to the amount to be paid. The only assessment occurring is to ensure the claim is made in terms of the bond itself – a process identical to the payment of a bank guarantee.