This page contains a glossary of surety terms you may find useful. Choose the term by using the letter below of scrolling down until you find the word you are looking for.

*Who are you? To discover what your role for the bond application is, see the definitions of Insurance Agent, Principal, and Attorney.



Administrator: A person legally vested with the right of administration of an estate.

Aggregate: The total amount of exposure or liability of a principal or a surety, over a single or multiple bonds.

AIA: Acronym for American Institute of Architects. In relation to surety, the publisher of standard template forms of surety bonds and related contract documents.

Annual Accounting: This term relates to Fiduciary Bonds, and is a presentation to the court of an estate’s financial activity

Appeal Bond: One filed in court by a defendant (the appellant), against whom a judgment has been rendered, in order to stay execution of the judgment pending appeal to a higher court, in the hope of reversing the judgment.

Applications: A form used to collect information to underwrite a risk.

Attachment: The legal process of taking possession of a defendant’s property when the property is in dispute.

Attorney: A person legally appointed by another to act as his or her agent in the transaction of business, specifically one qualified and licensed to act for plaintiffs and defendants in legal proceedings.


Balance Sheet: A financial statement listing assets, liabilities and net worth.

Bankruptcy Trustee Bonds: Bonds which provide a guarantee to the beneficiaries of the bankruptcy that the bonded trustees, appointed in a bankruptcy proceeding, will perform their duties and handle the affairs according to the ruling of the court.
Common Types of Bankruptcies are:

  • Chapter 7: Calls for the “liquidation” of a business and allows for the sale of the assets to pay outstanding debts.
  • Chapter 11: Calls for the “reorganization” of a business and the debtor remains in possession of the assets after the filing of a plan for the reorganization.
  • Chapter 13: Also called the “wage earner’s plan”, enables individuals with regular income to develop a plan to repay all or part of the debt.

Bid Bonds: Bonds which guarantee that a contractor will enter into a contract at the amount bid and post the appropriate performance bonds. These bonds are used by owners to pre-qualify contractors submitting proposals on contracts. These bonds provide financial assurance that the bid has been submitted in good faith and that the contractor will enter into a contract at the bid price.

Blanket Bonds: Guarantees the honesty of all an organization’s employees.

Blanket Position Bonds: Guarantees the honesty of all a list of an organization’s employees.

Blanket Public Official Bonds: Guarantees the honesty of all public employees of a public organization.

Blanket Position Public Official Bonds: Guarantees the honesty of a list of public employees of a public organization.

Bond: An instrument which guarantees the integrity and honesty of the principal; his/her ability, financial responsibility, and compliance with the law or performance of contract. Bonds are written by the surety on behalf of the principal to ensure satisfaction to the obligee.

Bond Penalty: or Penal Sum; the amount of, or limit of liability of, a bond.

Business Financial Statement: A collection of reports about an organization’s financial results and condition. Usually consists of, at a minimum, a Balance Sheet, an Income Statement (Profit & Loss), a Statement of Cash Flows, and Aging Reports of Accounts Payable and Accounts Receivable. These statements should always reflect an “End of Month” date and be fully reconciled. “Quality” will often be referred to regarding business financial statement, and refers to the level of professional preparation: “In-House” means the principal’s internal accounting team prepared the financial statement. “CPA Engagement” can be on the “Quality” level of “Compilation”, “Review”, or “Audit”, and most often is a year-end report.


Capacity: A term that refers to the size of a bond which a surety is able to write. May also refer to the size of bond which a Principal is approved for.

Cash Value of Life Insurance: The amount received from certain types of life insurance policies when liquidated prior to the insured’s death, as shown on the monthly/period policy statement. NOT equal to face value. See Face Value of Life Insurance

Collateral: Security held by the surety company to reduce the surety’s risk when issuing a bond. Collateral may be in the form of cash, irrevocable letter of credit or real estate.

Commercial Surety Bond: This class of surety bonds includes most miscellaneous bonds, but do not include bid, performance, and payment or fidelity bonds. There is usually a statute or law requiring these bonds.

Completion Bond: Guarantees performance of a construction project, and names as an obligee a city, county, utility, lender or similar party in a position to invoke the performance features of the bond for his benefit without an obligation to provide contract funds to complete.

Conservator: A person, official or institution designated to take over and protect the interest of an incompetent or minor.

Contingent Payment Clause: aka “Pay when paid” and “Pay if paid”. Primarily used in construction subcontracts and materials contracts, this clause can either delay a payment obligation (General Contractor will pay Subcontractor or Materialmen “X” days after receiving payment from Job Owner) or remove a payment obligation (GC will not pay Subcontractor or Materialman if Job Owner does not pay). States and Courts hold wildly different interpretations of these clauses.

Continuity Plan: aka Disaster Plan or Resiliency Plan, a plan, system or process of creating chain-of-command, long-term-vision and funding for prevention of or recovery from potential threats to a company and it’s projects, such as death or disablement of a key officer.

Contract Bonds: A type of bond designed to guarantee the performance of obligations under a contract. These bonds guarantee the obligee that the principal will perform according to the terms of a written contract. Construction contracts constitute most of these bonds. Contract bonds protect a project owner (obligee) by guaranteeing a (principal) contractor’s performance and payment for labor and materials. Because the contractor must meet the surety company’s pre-qualification standards, construction lenders are also indirectly assured that the project will proceed in accordance with the terms of the contract.

Cosigner: An individual or entity that joins in the execution of a promissory note to compensate for any deficiency in the applicant’s repayment ability. The cosigner becomes jointly liable to comply with the terms of the promissory note in the event of the borrower’s default.

Cost Bonds: A type of bond guaranteeing the payment of the cost of a trial. May also be called a Cost of Appeal bond.

Court Bonds: A general term referring to bonds required in some action of law.

Covenants: In surety, typically refers to conditions set by a bank, which the borrower must maintain, in order to continue a lending arrangement.

Current Assets: Cash, liquid accounts, current accounts receivable, a portion of inventory.

Current Liabilities: Obligations for which payment must be made within 12 months.

Current Portion of Long-term Debt: One years’ worth of payments on a debt.


Damages: Term that refers to monetary measures of harm which may have occurred in a claim.

Defendant: The term that refers to the person or institution being accused in a court case.

Defendant Bonds: Defendant Bonds counteract the effect of the bond that the plaintiff has furnished. These bonds are more hazardous than plaintiff bonds. Often, they require the posting of collateral to be written.


Employee Retirement Income Security Act (Often called ERISA): The 1974 act that created a requirement for a bond to be posted, in the amount of ten percent of the funds, on the fiduciary of pension funds and profit sharing plans.

Equity: The financial worth in an entity or item. In business, the net amount that would be generated upon liquidation.

Error and Omissions Insurance: This is a form of insurance covering damages resulting from the negligence or mistakes that occur in the course of doing business. (Often called E&O)

Executor: A person appointed to execute a will.


Face Value of Life Insurance: The amount paid to beneficiaries upon the insured’s death. NOT equal to Cash Value. See Cash Value of Life Insurance

Fidelity Bonds: Bonds designed to guarantee honesty. Generally, the bond guarantees honesty of employees. These bonds cover losses arising from employee dishonesty and indemnify the principal for losses caused by the dishonest actions of its employees.

Fiduciary: One who is appointed to act in the best interest of another. A fiduciary is a person appointed by the court to handle the affairs of persons who are not able to do so themselves. Fiduciaries are often requested to furnish a bond to guarantee faithful performance of their duties.

Fiduciary Bonds: Bonds which guarantee an honest accounting and faithful performance of duties by administrators, trustees, guardians, executors and other fiduciaries. Fiduciary bonds, in some cases referred to as probate bonds, are required by statutes, courts or legal documents for the protection of those on whose behalf fiduciary acts. They are needed under a variety of circumstances, including the administration of an estate and the management of affairs of a trust or a ward.

Financial Statement: A collection of reports about an organization’s financial results and condition. Usually consists of, at a minimum, a Balance Sheet, Income Statement (Profit & Loss), Statement of Cash Flows, and Aging Reports of Accounts Payable and Accounts Receivable.

Forfeiture Bond: A bond requiring payment of the entire bond penalty upon default of the principal, regardless of size of actual loss.

Funds Control: This is a surety tool to help reduce the surety’s risk when issuing a bond and refers to a professional third party paid a fee to be responsible for collecting contract payments and paying the subcontractors and suppliers for specific contracts.


GAAP: Acronym for Generally Accepted Accounting Principles, the standards for accounting adopted by the US SEC and the American Institute of CPA.

Guarantee: A promise to answer for the debt or default of another.

Guardian: One appointed by the court to manage the estate of a minor or incompetent.



Income Statement: One of the main financial statements (along with the balance sheet). The income statement is also referred to as the profit and loss statement, P&L, statement of income, and the statement of operations. The income statement reports the revenues, gains, expenses, losses, net income and other totals for the period of time shown in the heading of the statement

Indemnification: The act of guaranteeing another repayment in the event of a loss.

Indemnity to Sheriff or Marshal: A bond which covers and indemnifies liability to a third party, incurred by a sheriff or marshal upon request of a party, in the execution of the process of a court.

Individual Bonds: A term generally used with public official bonds, which refers to bonds written in the name of the specific public official.

Insurance Agent: Licensed insurance agent, broker, producer or representative.

Invitation to Bid: The request for proposals to enter into a contract. Usually includes the scope of work, location, proposed contract details such as estimated size, duration, liquidated damages and warranty requirements which a surety may want to review.

Irrevocable Letter of Credit (or ILOC): an instrument of collateral, which is an unbreakable relationship between a bank and beneficiary, typically a surety company or obligee. The ILOC cannot be cancelled or reneged and is sometimes used in lieu of surety bond.


Judicial Bond: Bonds required of litigants who seek to avail themselves of privileges or remedies which are allowed by law, for the protection of the opposing litigant or other interested parties.



Lessee: A tenant.

Lessor: One who grants a lease. Landlord.

License and Permit Bonds: A term used to refer to bonds which are required to obtain a license or permit in any city, county or state. These bonds guarantee whatever the underlying statute, state law, municipal ordinance or regulation requires. They may be required for a number of reasons, for example the payment of certain taxes and fees and providing consumer protection as a condition to granting licenses related to selling real estate or motor vehicles and contracting services.

Lien: A charge upon real or personal property for the satisfaction of a debt. See also Mechanic’s Lien

Lien Release Bond: See Release of Lien Bond

Life Insurance Value: see Cash Value of Life Insurance and Face Value of Life Insurance

Limited Liability Company: An LLC is a hybrid business entity created by statute. It is an unincorporated association of members which, if properly structured, receives pass-through federal tax treatment and limited liability for its members.

Line of Credit: can refer to many things. Generally, a pre-determined amount of credit available to a borrower by the lender.  Varying types may be referred to as ILOC (see Irrevocable Letter of Credit), BLOC (Business or Bank LOC), HELOC (Home Equity LOC) OLOC (Operating LOC) or WCLOC (Working Capital LOC). A LOC may be used as collateral to secure a bond or other obligation, increase liquidity of a financial statement, or held by an obligee as surety alternative, or other.

Litigant: A party to an action at law.

Little Miller Act: varying State-by-state versions of the Miller Act, which require surety bonds on state public works contracts.

Liquidated Damages: During the formation of a contract or invitation to bid, the amount the parties designate for the obligee to withhold as penalty or compensation upon a specific breach of contract, such as late performance. Typically stated in a “dollars per day” amount, or a formula relating the value of the contract to the allowed duration.

LLC Agreement: A legal document also known as an operating agreement, though not always legally required, which dictates how a Limited Liability Company is operated, who the members are, and their duties and rights.

Lost Securities Bonds: Bonds given by owners of valuable instruments (i.e. stocks, bonds, promissory notes, certified checks, etc.) which are alleged to have been lost or destroyed, in order to protect the issuers against loss which may result from the issuance of duplicate instruments or, in some instances, payment of cash value thereof. Note: for certified checks, the issuing bank will often issue this bond.


Maintenance Bonds: Bonds that provide for the upkeep of the project for a specified period of time after the project is completed. These bonds guarantee against defective workmanship or materials. These bonds may occasionally include a guarantee of “efficient or successful operation” or other obligations. See Warranty/Maintenance

Mechanic’s Lien: A claim of right to detain property exercised by one who has furnished labor or material used on said property.

Mechanic’s Lien Discharge Bond: see Release of Lien Bond

Miller Act: (USC Title 40, 1935) The Miller Act requires Federal contracts over a specified amount must be secured, typically with surety bond(s).

Minor: A person who is not of legal majority. In certain situations, a person may be appointed as a guardian of a minor.

Miscellaneous Bonds (Also called Commercial Surety Bonds): A term used to refer to bonds which do not fit any of the other well-recognized categories of surety bonds.


NASBP: An acronym for the National Association of Surety Bond Producers. see

Notary Public Bonds: Include bonds that are required by statutes to protect against losses resulting from the improper actions of notaries.


Obligee: The person or institution to which a surety guarantees that a principal perform as expected.

Obligor: The entity for whom the debt is made. Under a bond, strictly speaking, both the principal and surety are obligors since the surety company must answer if the principal defaults.

Omnibus Language: A clause found in the Agreement of Indemnity, which extends the signer’s indemnity to bonds written for “the Applicant; individually; jointly with others or on behalf of any of its subsidiaries, affiliates or divisions or their subsidiaries, affiliates or divisions now in existence or hereafter formed or acquired; or on behalf of individuals, partnerships or corporations. . . .”

Open Penalty: A term used to refer to the unlimited liability of the surety on a particular bond.

Ordinance: A municipal regulation.


Payment Bonds: Payment bonds guarantee payment of the contractor’s obligation under the contract for subcontractors, laborers and materials suppliers associated with the project. Since liens may not be placed on public jobs, the payment bond may be the only protection for those supplying labor or materials to a public job.

Penalty: A term used to refer to the monetary size or limit of a bond. (Also called Penal Sum)

Pension: A fixed sum of money regularly paid to a person.

Performance Bonds: Performance bonds guarantee performance of the terms of a contract. These bonds frequently incorporate payment bond (labor and materials) and maintenance bond liability. This protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.

Personally Identifiable Information (PII): As used in information security, is information that can be used to uniquely identify, contact, or locate a single person or can be used with other sources to uniquely identify a single individual [ref].

Personal Surety: An individual who acts as surety for another.

Plaintiff: The person or institution that brings an action in a court of law.

Plaintiff Bonds: Plaintiff bonds are required of a plaintiff in an action of law. They generally guarantee damages to the defendant caused by the plaintiff’s legal action, should the court decide for the plaintiff.

Plat Bond: aka subdivision bond, completion bond, improvements bond, or developer bond. Required by City or County as a condition of permitting or formal platting of land, usually guarantees completion, performance, or maintenance of self-funded improvements on a development project, such as sidewalks, roads, utilities, environmental restoration, etc.

Position Schedule Bonds: A type of fidelity or public official bond which lists specific positions and their corresponding penalty amounts. Position schedule bonds use one bond but attach a schedule of positions to be bonded. Each name will list specific dollar amounts for which that individual is being bonded. This type of bond may be used to bond certain positions that have a high amount of turnover. Using a position instead of a name will reduce the paperwork involved year-to-year.

Power of Attorney: Authority given to a person(s) to act for and obligate another to the extent defined in the instrument. In surety, an instrument which appoints an attorney-in-fact to act on behalf of the surety in signing bonds.

Premium: A sum of money paid as consideration for a bond. Does not include a factor for the payment of losses as does an insurance premium.

Principal: The individual or entity required to be bonded by the obligee. The party whose performance, actions, honesty, or responsibility is being guaranteed.

Probate: The legal process of administering estates of decedents, minors and incompetents.

Probate Bond: One that guarantees an honest accounting and faithful performance of duties by administrators, executors, trustees, guardians and other fiduciaries, so-called because such bonds are usually filed in a Probate Court.

Profit & Loss (P&L)  Statement: One of the main financial statements (along with the balance sheet). The income statement is also referred to as the P&L, income statement, and the statement of operations. TheP&L reports the revenues, gains, expenses, losses, net income and other totals for the period of time shown in the heading of the statement

Public Official Bonds: A type of bond that guarantees a public official will act with honesty and/or faithful performance. These bonds are required by statutes and ordinances.

Public Official: Person who holds public office.



Rates: The amount of money per thousand dollars (or percentage) used to determine the bond premium.

Receiver: One appointed by a court to take custody of property. Sometimes bonded.

Reclamation Bonds: A bond which guarantees that an institution will restore land that it has mined or otherwise altered to its original condition.

Release of Lien Bond: A Lien against real estate may be filed for an amount claimed to be due for labor or materials used on said property. Pending final determination of the property owner’s liability, the owner may “release” (aka discharge or replace) the lien by “bonding around”; giving bond conditioned for the payment of any amount that may be found due to claimant with interest and costs. Note: usually 100% collateralized.

Renewal: Continuance of a bond obligation for a subsequent term, in consideration of an additional premium charge.

Replevin: An action of a law used to recover specific personal property.

Replevin-Plaintiff’s Bond to Secure: Replevin is an action to recover possession of specific personal property. The replevin bond, which the plaintiff is required to furnish, is conditioned for the return of the property, return is ordered, and for the payment of all costs and damages.

Replevin-Defendant’s Bond to Recover Property Replevied: Where personal property has been replevied the defendant may, by the furnishing of a bond, regain possession of the property, pending final decision on the merits. The bond is conditioned for redelivery of property to the plaintiff, if ordered to do so, or otherwise to comply with a court order or judgment.


SFAA: An acronym for the Surety & Fidelity Association of America, which is the surety counterpart to ISO. SFAA was founded in 1908 as the Surety Association of America (SAA). The industry’s Commerical Surety Fundamentals book says the SAA was initially founded to promote interests of the surety market, as well as standardize bond forms across the industry. The group changed its name to the Surety & Fidelity Association of America to emphasize the market’s crucial fidelity component.

SBAAn acronym for the Small Business Administration. The SBA has a program, “Office of Surety Guarantees“, to help small and minority owned contracting businesses obtain surety bonds.

Statute: A law enacted by a legislature.

Statutory: Required by, or having to do with, a law or statute.

Statutory Bond: A bond given in compliance with statute. Such a bond must carry whatever liability the statute imposes.

Stay of Execution: A bond to stay or suspend execution on a judgment. It guarantees the payment of the judgment upon termination of the stay by the court.

Subcontract Bond: One required by a general contractor of a subcontractor, guaranteeing that the subcontractor will faithfully perform the subcontract in accordance with its terms and will pay for labor and material incurred in the prosecution of the subcontracted work.

Subdivision Bond: A type of bond that guarantees that the owner of certain property will make assure that specific improvements will be made to the property.

Supply Bonds: Bonds which guarantee performance of a contract to furnish supplies or materials. In the event of a default by the supplier, the surety indemnifies the purchaser of the supplies against the resulting loss.

Submission: The presentation of underwriting data to a surety or its agent.

Supersede: To replace.

Supersedeas: A writ staying execution of a judgment pending appeal.

Supply Bonds: Bonds that guarantee performance of a contract to furnish supplies or materials. In the event of a default by the supplier, the surety indemnifies the purchaser of the supplies against the resulting loss.

Surety: A person or institution which guarantees the acts of another.

Surety Bonds: Surety Bonds are three-party agreements in which the issuer of the bond (the surety) joins with the second party (the principal) in guaranteeing to a third party (the obligee) the fulfillment of an obligation on the part of the principal. An obligee is the party (person, corporation or government agency) to whom a bond is given. The obligee is also the party protected by the bond against loss.

Surety Industry: The surety industry is composed of contract surety business and commercial surety business. The products comprising each are sold through the same type of distribution system – agents and brokers.


Three C’s: The basis of Surety Underwriting; Character, Capacity, Capital

Treasury Listing: A financial rating published by the federal government that lists the maximum size of federal bond a surety is allowed to write.

Trustee: A trustee is a person named to manage a business’ assets and work with the business’ creditors.




Warranty/Maintenance: This can refer to several situations. Construction or Supply Contracts may have a term of Warranty or Maintenance for a defined number of years, where the Principal is responsible. Typically 1-2 year term, longer terms are more difficult to approve. Completion/Subdivision/Developer/Plat performance bonds are often replaced with Maintenance Bonds upon completion of the performance.

Work-On-Hand Reports: A type of financial statements or schedule which lists a contractor’s jobs in progress.

Workers’ Compensation Self-Insurers Bond: Workers’ Compensation laws, at the state and federal level, require employers to compensate employees injured on the job. An employer may comply with these laws by purchasing insurance or self-insuring by posting a workers’ compensation bond to guarantee payment of benefits to employees. This is a hazardous class of commercial surety bond because of its “long-tail” exposure and potential cumulative liability. The “long-tail” exposure stems from the two statutory bond forms: Traditional – bond form: The surety is liable for payment of the principal’s workers’ compensation obligations occurring during the time the bond is in force. When the bond is cancelled, the surety continues to have liability for all workers’ compensation claims incurred between the effective date of the bond and the cancellation date of the bond. Last surety on – bond form: The surety assumes all past, present and future liability to pay the principal’s self-insurers workers’ compensation obligations. The surety is released from all accrued liability if the surety cancels the bond and the principal later posts an acceptable replacement security.

Working Capital: The liquid assets available to a business, primarily to fund projects. Typically calculated as current assets, less current liabilities.





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