How does a demand bond differ from other types of surety bonds?

A demand bond is distinct from other types of surety bonds in that it allows the bondholder to make a demand for payment without needing to obtain a legal judgment first. This characteristic provides immediate liquidity to the obligee (the party requiring the bond) if the principal (the party obtaining the bond) fails to meet their obligations. This feature is particularly valuable in transactions where prompt payment is necessary, as it streamlines the process and reduces the time involved in collecting debts as compared to other bonds which might require court proceedings.

In contrast, other types of surety bonds often involve more complex processes when payment is sought, including the need for legal actions to establish claims. This can introduce delays and uncertainties for the parties involved. Additionally, the nature and purpose of different bonds impact their structure, whereas the demand bond is specifically designed for immediacy in reclaiming funds.