Bond Cost Definition: Everything You Need to Know
A surety bond is a legally binding contract that ensures a minimum of three parties will meet the obligations outlined in the bond.3 min read
To understand bond cost definition, you first need to know what a bond is. A surety bond is a legally binding contract that ensures a minimum of three parties will meet the obligations outlined in the bond. The principal of the bond is the person who needs it. The obligee of the bond is the person who is requiring it. The surety is the person that is making sure the principal is going to fulfill his or her obligations.
What Is a Surety Bond?
Most times, a surety bond is regarded as a three-party agreement. It legally binds all of the parties together. From a legal standpoint, the bond ensures the principal party is going to follow certain laws. If the principal does not follow those laws, terms, and conditions set forth in the bond agreement, the resulting damages are to be covered by the bond.
Most people think of surety bonds as something that only takes place in criminal court proceedings. The truth of the matter, though, is that surety bonds are used in almost all industries. You can view surety bonds as a type of insurance policy. If something doesn't go as it's supposed to, the surety bond is then released to the impacted party as a form of compensation.
It is not uncommon for this type of bond to be referred to as an indemnity bond, but this is not correct. Surety insurance is somewhat like a surety bond. It is used by business owners as a form of protection.
How to Get a Surety Bond?
If you are going to get a surety bond, the first thing you need to consider is the type needed. There are literally thousands upon thousands of different types of bond requirements in the United States. If you were to buy one and it's the wrong type, then it will not be accepted by the obligee.
What Types of Bonds Are There?
You should always identify which type of bond you need and then go from there. For example, you might need a $100,000 bond. If so, then you will need to purchase this type. If you are getting a bond and it is not for a specific contract, then it is going to fall into one of following categories:
- Court bond
- License bond
- Fidelity bond
A court bond is needed when a person gets into trouble with the law and instead of sitting in jail until their next court date, the judge will issue a bond. Let's say the bond is for $5,000. If a person pays the $5,000, the offender will be released from jail until at least the next court date. If the person does not show up to court, then the $5,000 will be forfeited.
There are several downsides to the types of bond listed above. First, they require 100% collateral, and if the principal does not meet his or her obligations, the person who put up the collateral will lose it. Also, these bonds have a high cost. There is no bond premium to be paid, but if the collateral is secured because the principal does not fulfill his or her obligations, then this is a huge loss.
What Is a Cost Bond?
A cost bond is often needed and serves as a surety bond when a payment to the court needs to be secured. This is usually required by plaintiffs when they want to file a lawsuit that is outside of the state they live in. When a person acquires a cost bond, it is holding the person to a promise that he or she will pay for litigation expenses. These expenses can quickly add up and become an enormous amount. They often include:
- Private investigation fees
- Deposition fees
- Attorney fees
- Court costs
- Payment for obtaining medical records
- Payment for obtaining government records
- Copy fees
- Paralegal fees
With a cost bond, you are making a promise that you are going to cover all of the fees outlined above. There will likely be other fees that you have to cover as well. In the event that you do not cover these costs, a claim can be made against you by the court that mandates you to make payments.
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