What is a contractor's bond?

A contractor's bond is an insurance policy that a contractor purchases to protect a customer if the contractor fails to do everything required under the terms of the contract with the customer. The actual product that the contractor buys is called a surety bond.

There are different types of surety bonds, which are agreements between the contractor, the customer and the surety company. A performance and completion bond makes sure that the work is done to the customer's satisfaction. A payment bond shields customers from claims by subcontractors. Contractors may be required to purchase licence and permit bonds by state regulations.