Surety bond

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A surety bond is normally purchased by a business and issued by an insurance company to insure the customer that the business will deliver the goods or services they are contractually bound to deliver.

They are often used in construction projects where the contractor will buy a bond that guarantees to his customer that the work will be completed. Should the contractor be unable to finish the contract, perhaps due to bankruptcy, the surety will pay to the customer up to the bond value to have the work completed.

Almost without exception, the surety will have the right to subrogate against the contractor to recover their money.

Surety bonds are often known as Performance Bonds.

Surety bonds may also be purchased by an estate to insure the executor's proper performance. This is also referred to as a "fidelity bond."