At some point, you have probably seen an advertisement or a job ad that mentioned the term “licensed and bonded” and wondered exactly what that means. The bonding part refers to the purchase of a surety bond, which works similarly to an insurance policy that protects against very specific events. There are many different kinds of surety bonds. These are four of the main types.

Understanding 4 Types of Surety Bonds

1. Fidelity Bonds

Fidelity bonds protect employers against losses due to the malpractice of their employees. These bonds usually protect the employer’s money, equipment or personal supplies. For example,  dishonesty bonds specifically protect a business from losses that result from dishonest acts.

2. Contract Bonds

A contract bond protects a party to a contract against losses due to the other party not following through on the obligations they agreed to in the contract. This bond ensures that the contractor will complete all agreed-upon work and pay for any subcontractors and supplies need to complete the contract.

3. Court Bonds

Attorneys or other entities who deal with court cases may sometimes require a court surety bond to protect themselves against potential losses due to nonpayment. These bonds require that clients pay all associated costs with handling a trial or appeal of the judgment. Other court surety bonds are issued to protect estates from the wrongful acts of estate administrators.

4. Commercial Bonds

Commercial bonds are usually required by government agencies to protect the public interest. These bonds are usually issued to certain types of licensed businesses whose improper business practices may be harmful to the public, such as liquor stores. Other types of commercial bonds include lottery bonds, auto dealer bonds and mortgage broker bonds.

Almost any transaction involving a contract can be bonded. Bonds serve to protect against losses due to misconduct or failure to meet the obligations of a contract.