Surety Bonds discounts and questions
A bond is a guarantee, not insurance: a surety promises a third party that you will do what a licence, a contract or a court requires, and if you do not, the surety pays and you repay the surety. License, contract, court and fiduciary bonds are placed through the same office.
Discounts carriers commonly offer
- Strong personal credit
- License, permit and small commercial bonds are rated almost entirely on the owner's credit score; a clean file gets the preferred rate tier.
- Reviewed financial statements
- For contract bonds and larger commercial bonds, accountant-prepared statements and a clean work-in-progress schedule raise capacity and lower the rate.
- Multi-year term
- Paying a license bond for two or three years at once, where the board allows it, at a lower total than annual renewals.
- Claims-free bonding history
- No paid bond claims and no cancellations on the record the surety checks.
- Placed alongside the business package
- Sureties that also write the contractor's liability and auto policies often price small bonds as an accommodation.
Questions people ask
If I pay the premium, why do I have to pay the claim back too?
Because the premium is a fee for the surety's guarantee, not a transfer of the risk. Insurance pools losses across many policyholders and expects to pay some of them; a surety expects to pay nothing and, if it does, to be made whole by the principal under the indemnity agreement. The premium reflects that expectation, which is why a bond costs a small fraction of the amount it guarantees.
Which bond does the licensing board want?
The board's own form, in the amount set for your classification and licence type, naming the board as obligee. Each of the four state boards publishes its bond amounts and forms and changes them from time to time. Send us the licence application or renewal notice and we will match it; the wrong form or an old amount is returned at filing and delays the licence.
Can I get bonded with poor credit?
Usually, at a higher rate, and in some cases with collateral or a co-indemnitor. Sureties have programmes for applicants with credit problems, bankruptcies or tax liens, and the rate improves as the credit does. Being honest on the application matters more than the score itself; an undisclosed judgment found later is treated as misrepresentation.
How much does a bond cost?
A rate applied to the bond amount, set by the bond type and the applicant's credit and financials, for the term of the bond. For example, on a licence bond that guarantees ten thousand dollars, an applicant with good credit might pay a premium in the low hundreds of dollars for the year, while one with weak credit might pay several times that for the same bond. The bond amount itself is never the price, which is the most common confusion on a first application.
What is the difference between a performance bond and builders risk or liability insurance?
The performance bond guarantees to the owner that the contract will be completed; it pays the owner if the contractor defaults, and the contractor repays the surety. Liability insurance pays third parties injured by the work, and builders risk pays for damage to the structure while it is being built. A job usually needs all three, from three different products, and the contract's insurance and bonding sections list each separately.
How long does a bond stay in force?
License bonds run for a term and renew as long as the licence does, and most are continuous until cancelled with notice to the obligee. Contract bonds run until the work is accepted and any warranty period ends. Court and fiduciary bonds run until the court discharges them. A bond that is cancelled or allowed to lapse is reported to the obligee, which for a contractor means the board suspends the licence until a replacement is filed.