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A bond is a three-party contract under which the insurer (the surety) guarantees another's conduct for the benefit of a third party. Bid bonds, payment bonds, and performance bonds are the most common type of surety bonds, and fidelity bonds are a common form of crime bond.

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The principal (i.e., the party paying the bond premium) is also called the obligor (i.e., the party with the obligation to perform). If there is a default, the issuer (i.e., surety/insurer) pays the loss of the third party (the obligee). The obligor must then reimburse the surety for the amount of loss paid.

Related Terms

A bid bond is provided by a contractor in a competitive bidding situation as a means of...

A payment bond guarantees that suppliers and subcontractors will be paid for materials and labor...

A performance bond guarantees that the contractor will perform the work in accordance with the...