Surety bonds
An insurer's guarantee to the party awarding a contract that the contractor will bid in good faith and perform as agreed. It is an alternative to tying up banking limits in a bank guarantee.
What it covers
Cover varies between insurers and plans. The policy wording is what decides whether a claim is payable, so read it before you buy.
- Bid bonds, guaranteeing that a bidder will honour its tender
- Performance bonds, guaranteeing that the contract will be performed
- Advance payment bonds, securing money paid to the contractor up front
- Retention money bonds, releasing amounts otherwise held back
- Payment to the beneficiary on a valid demand within the terms of the bond
Key features
- Issued by insurers under the surety insurance framework introduced by IRDAI in India
- Leaves your banking limits free, because the bond does not use your bank facility
- Bond value and validity are matched to the contract
- The insurer underwrites the contractor's financial strength, experience and project record
- The contractor indemnifies the insurer: an insurer that pays the beneficiary recovers from the contractor
- Capacity per contractor and per bond is set by the insurer: [CAPACITY LIMITS]
How to buy it
Four steps, with an advisor you can reach at any of them.
Tell us about the risk
Send us the contract and its bond requirement, your financial statements, and your record on comparable projects.
Underwriting details
An advisor collects the information insurers need to price the risk, and flags anything missing.
Compare quotes
We ask our partner insurers to quote, and put the cover, conditions and premium side by side.
Proposal & policy
Pick a quote, complete the proposal form and KYC, and the insurer issues the policy.
Surety bonds: FAQs
How is a surety bond different from a bank guarantee?
Both give the project owner security. A bank guarantee uses your banking limits and usually needs margin money; a surety bond is issued by an insurer, leaving your bank facility free for working capital.
Is the contractor insured by the bond?
No. The bond protects the party awarding the contract. If the insurer pays out, it recovers the amount from the contractor, who has indemnified it.
Who accepts surety bonds in India?
Central and state agencies and many project owners accept them, but acceptance is at the discretion of the party calling for the bond. Confirm it before you bid.
What does the insurer look at?
Your financial statements, order book, experience on comparable projects, and how the contract is structured. A bond is underwritten, not simply purchased.