Bond terms in plain English

A

Applicant

The person or business seeking the bond — usually the same as the principal.

B

Bond Amount (Penal Sum)

The maximum dollar amount the surety may be obligated to pay under the bond.

Bond Claim

A demand that the surety pay for a covered failure by the principal.

Bond Form

The written bond document — often a form required by the obligee or statute.

Bond Premium

The price paid to keep the bond in force — typically a percentage of the bond amount.

C

Commercial Bond

A broad category of bonds for licenses, permits, courts, and business obligations. See the License & Permit Bond Hub for common Texas examples.

Contract Bond

A bond that backs performance or payment on a construction or service contract (for example bid, payment, or performance).

Credit Check

Review of personal or business credit used in underwriting most commercial bonds.

I

Indemnity Agreement

The contract under which the principal agrees to reimburse the surety for losses and expenses.

L

License & Permit Bond

A bond required to obtain or keep a license, guaranteeing compliance with licensing rules.

O

Obligee

The party protected by the bond — often a government agency, project owner, or court.

P

Payment Bond

A contract bond that protects subcontractors and suppliers if they are not paid.

Performance Bond

A contract bond that guarantees the principal will complete the work per the contract.

Principal

The party whose performance is guaranteed — usually the business buying the bond.

R

Renewal Term

The period for which a bond is extended, often annually for license bonds.

S

Surety

The company that issues the bond and guarantees the obligation within the penal sum.

U

Underwriting

The surety’s review of risk before issuing a bond — credit, financials, experience, and bond type.

Underwriter

The person or team that evaluates and prices the bond.

Utility Bond

A bond that can replace a cash deposit required by a utility company.

W

Warranty Bond

A bond that backs repair or maintenance obligations after project completion (also called a maintenance bond in many contracts).