What Is a Surety Bond?

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A surety bond is a guarantee that a job or a payment will be completed and that the payment will be received. Learn how surety bonds can be used to provide comfort to a future homeowner with help from a personal asset manager in this free video on the bond market and money management.

Part of the Video Series: Bond Market
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Video Transcript

Hello, I'm Roger Groh with Groh Asset Management. Today we're here to talk about surety bonds, what are they, how can you use them and how can you benefit from them. A surety bond is really a guarantee that a job or a payment, the job will be completed or a payment will be made. An example, if you decide you're going to build a house, you hire a contractor, you give that contractor a lot of money upfront to buy all of the supplies that they will need and also for payment for the project. You may not feel comfortable in doing that and you may ask that contractor to go out and get an insurance company to guarantee to you the homeowner, that the project will be completed. Now it's going to cost the contractor some money to do that, but nonetheless from a homeowners perspective, it will give you comfort because you know even if the contractor doesn't perform that the insurance company then will then come in, hire another and finish your home for you. Other examples possibly of how you might be able to use surety bonds, if you're guaranteeing a project of any type, a software development project, an insurance penalty, if you're guaranteeing that you will drive a car from here to New York and you will deliver that car to New York, well the surety bond will give comfort to the owner of that vehicle in the case of driving across the country to New York that in fact you'll really deliver the car. Now does it cost some money to do that? Yes, but even if you were not to deliver the car, if mistakenly you kept driving it and never returned it, well the insurance company would then buy a new car for the person that initially had hired you to drive theirs. So I'm Roger Groh, that's a little bit about surety bonds and thank you very much for spending time with me.

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