What is a Surety Limit?
A surety limit, on the other hand, indicates the maximum price of coverage that an insurer is willing to underwrite. It is the financial level of the surety’s liability up to the extent of the claim file that has been made against the bond. The surety limit (the maximum amount that the surety agency is obligated to pay) is fixed in the contract and determined mainly by the type of bond, the degree of risk involved, and the particular conditions of the beneficiary (the party requiring the bond).
For example, in a construction project, the surety limit on a performance bond might be equal to the contract value or a percentage thereof. This means that if the contractor fails to complete the project according to the contract terms, the surety’s liability under the bond is limited to the specified surety limit.