Bond FAQ's

A:       Simply because a government authority or private entity is requiring the bond in order for you to operate. The bond ensures you will follow their guidelines.

Q:      What good is a bond if I have to pay for claims?

A:       A bond is not insurance, it is a form of credit where the principal (you) are responsible to pay any claims. The alternative to a bond is to post cash or letter of credit. Surety bonds are advantageous, as they typically require no collateral, which frees up capital. Bond premiums are also similar to fees for letter of credit and are typically less than one would earn making conservative investments with the available capital.

Q:      Shouldn’t I get a great bond rate since I’ve never had a claim?

A:      While the surety will be happy to hear you have never had a claim, it is not a selling point. Bonds are underwritten quite differently than regular insurance. When it comes to insurance, losses are expected. However, bonds are underwritten with the expectation of no losses. Therefore, if you ever trigger a claim, it is likely you will never obtain bonding again.

Q:      If I stay with a surety company for a long time will my premium be reduced?

A:      Surety bond rates rarely change unless the principal’s situation changes. Surety companies have to file underwriting guidelines to each state they do business in so they cannot discriminate. The rate filings are tedious, costly and do not change often. Therefore, unless the principal’s situation changes (business financials, owner(s) personal credit, etc.) the rate will not change often.

Q:      Why does my spouse have to sign the indemnity agreement?

A:      Surety companies have several reasons why they would like your spouse to personally guarantee the bond. Keep in mind, a bond is a guarantee of something. The surety company does the best they can to underwrite your bond, but have no way to gauge your character. A good way to do this is to have your spouse personally guarantee it, as they know you best. Spouses are also required to sign, as married couples have joint assets, which may have to be sought after in the event of a claim.

Q:      What is a blank bond form and where do I get one?

A:      It is a blank copy of the bond that you are required to post. It states exactly what the bond is guaranteeing. The bonding agent will use it to create the original bond by completing the blanks on the form, signing on behalf of the surety and attaching a power of attorney. You may need to obtain a blank copy of the bond form from the obligee or your bonding agent may have many of these forms online.