What is surety insurance?

A Surety insurance is a guarantee of the fulfillment of contractual obligations between two parties, where one party (the policyholder) assures the other party (the beneficiary) that it will comply with certain terms agreed in the contract.

According to Article 68

of Law 50/1980 of October 8, 1980, on Insurance Contracts.

A surety bond is a type of insurance contract through which the INSURER undertakes to indemnify the INSURED for any damages suffered if the INSURANCE HOLDER fails to meet the contractual or legal obligations it may have with the INSURER.

The surety bond contract works by the payment of a premium by the insurance holder to an insurance company. If the holder fails to fulfill its contractual obligations, the beneficiary can file a claim with the insurer to receive financial compensation up to the limit of the insured coverage.

It is important to note that a surety bond is different from other types of insurance, as it does not protect against direct losses but acts as a financial guarantee to ensure the fulfillment of contractual obligations.

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Benefits of surety insurance

Surety bonds offer a range of benefits compared to other types of guarantees, such as:

Does not count in CIRBE (Central Credit Register of the Bank of Spain)

No issuance, maintenance, study, or cancellation expenses.

Personalized and agile treatment, as it is a guarantee provided by a specialized insurance company rather than a banking institution.

The guaranteed amount is not reflected in the liabilities. It represents a deductible expense in the income statement.

Does not usually involve immobilization of funds. Thus, the company can release financial resources that would otherwise be tied up.

Tipically has lower costs and more flexible conditions.

Types of surety bonds

Provide provisinal guarantees

For example, in a public sector tender where a guarantee is required to respond to the maintenance of the bid submitted in the tender before the administration.

Provide definitive guarantees

For example, in a public sector tender where a guarantee is required to respond to the maintenance of the bid submitted in the tender before the administration.

Guarantees for amounts paid in advance in cooperatives.

Through surety bonds, the obligation to guarantee the amounts paid by cooperative members after obtaining the building permit can be fulfilled..

Advances on account

They guarantee the return, according to the established deadlines, of the payment received prior to execution for the purchase of materials or installation and equipment.

For renewable energy projects

They guarantee the construction and proper operation of connection points to the electrical grid.

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Customs and importation

They guarantee the payment of tax duties and fines resulting from the activities carried out by customs agents, importers, and temporary companies.

Tax deferrals or payment of special taxes

They guarantee the payments of installments established in the installment agreement with tax authorities. Or, in the case of special taxes, to respond to obligations arising from the intra-community circulation of dispatched products.

Judicial guarantees

They guarantee the economic reversibility of a procedure in a legal proceeding that is not final.

Before the award of a concession

The award of a concession contract requires a guarantee, which is essentially a performance bond, as it ensures that the concessionaire will comply with all conditions established in the concession contract.

For private security companies

They ensure administrative responsibilities for breaches of private security regulations arising from the company's operations.

For temporary employment agency

They ensure payment of debts for salary compensations and Social Security that may arise from the activity as a temporary employment agency.

Specific Examples

If you are planning to buy a property off-plan

A surety bond is the best way to ensure that the amounts paid in advance to the Developer, as well as the completion of the construction on time.

If you need to provide a guarantee

To request access to the Transport or Distribution Network demanded by the Authorities to obtain authorization for the start-up of Renewable Energy projects, the best option is a surety bond.

If you need to fulfill an environmental responsability

They ensure that the lands where quarries or mines are located are restored to their pre-exploitation state, according to the parameters established in the corresponding restoration plan.