How Does a Surety Bond Work?

May 1 Posted on

You may be familiar with surety bonds, but do you know how the process really works? Don�t worry, we�ve got you covered. Here�s a useful guide to help you understand what surety bonds are and how the process works.

For all of your bonding needs, Single Source Insurance is here. We offer a wide range of bonds with convenient online applications nationwide.

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What Is A Surety Bond?

A surety bond is a contract binding together three parties: an obligee, a principal, and a surety. Each of these parties has specific rights and responsibilities that are spelled out in the terms and conditions of the surety bond. The obligee is the party requiring the bond, the principal is the party required to purchase the bond, and the surety is the company that underwrites and issues the bond.

The purpose of a surety bond is to protect the obligee against financial loss resulting from the principal�s failure to live up to the terms of the bond agreement. The bond serves as the principal�s pledge to act in accordance with relevant laws, rules, and regulations and to make whole any party that incurs a financial loss due to the principal�s unlawful or unethical practices.

Who Needs Them?

Surety bonds are used for a wide variety of purposes in a wide variety of fields and industries. They are most commonly required as part of the process of becoming licensed in a particular profession (license and permit bonds), for construction contractors bidding and working on projects (construction or contractor bonds), and in legal proceedings (court bonds).

There are a variety of bonds available. Explore by category at Single Source Insurance:

How Do They Work?

Surety bonds are often mistakenly thought of as a form of insurance, but that�s not the case. While insurance protects the insured from financial loss, a surety bond protects others and obligates the principal to compensate them for their loss. In the event that the principal does not comply with the terms and conditions of the bond agreement, any party that suffers a financial loss as a consequence may file a claim against the surety bond.

When a claim is filed, the surety investigates to determine whether it is warranted. Upon determining that a claim is valid, the surety typically pays it on behalf of the principal and is subsequently reimbursed by the principal. An indemnification clause in the surety bond contract ensures that the surety can recover the amount of the claim from the principal.

How Much Do They Cost?

The principal pays a premium to obtain a surety bond. That premium is a small percentage of the full penal amount of the bond. While the penal amount of the bond is set by the obligee, the premium rate is determined by the surety based on certain underwriting factors. The most significant factor used in determining the premium is the principal�s credit score.

Bond applicants with good credit generally pay a premium rate of between 1% and 3%, which is the standard market rate. Those with poor credit may still be able to get bonded but will pay a higher premium rate.

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Whatever type of surety bond you may need, our experienced surety professionals are here to help you. Explore our site to quickly find the bonds you need, and apply online today.

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Popular Types of Bonds in Construction

Mar 20 Posted on

Surety bonds are a fact of life in the construction industry. Construction projects can cost a great deal of money�taxpayers� money in the case of public works projects and investors� money in commercial projects. Many states and municipalities require a contractors� license bond, simply to operate legally as a contractor or subcontractor. The three other types of surety bonds most often associated with construction projects are bid bonds, performance bonds, and payment bonds. Learn more about each below, and request a quote from Single Source Insurance today!

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Contractor�s License Bonds

In some states, contractors are licensed at the state level. In other states, the only licensing requirement for contractors is at the municipal level. In nearly all jurisdictions where licensing is mandatory, obtaining a license bond is also mandatory. A contractor�s license bond protects the state or municipality, as well as the public, from financial loss due to the unlawful or unethical actions of the construction contractor.

A contractor�s license bond typically obligates the contractor to abide by all applicable laws and industry standards. Failure to do so can result in a claim on the bond.

The Miller Act

Performance bonds and payment bonds are both requirements stemming from the Miller Act�federal legislation that applies to public works construction, modification, or repair projects valued at $150,000 or more. The Miller Act requires the general contractor selected for such projects to obtain a performance bond to protect the federal government and a payment bond to protect suppliers and subcontractors. Many states have their own �Little Miller Act� legislation that provides similar protection for state entities sponsoring public works projects.

Performance Bonds

Performance bonds guarantee the satisfactory completion of a project in accordance with the terms of the bond. It’s not uncommon for a contractor to underestimate costs and become insolvent before completing a project. In such cases, the project owner often must hire another contractor to complete the job.

A performance bond also protects the project owner (and by extension, taxpayers or private investors) against financial loss due to any unlawful or unethical actions of the contractor.

The only party that is entitled to file a claim against a construction performance bond is the project owner�known as the obligee in the bond contract.

Payment Bonds

Payment bonds are used to ensure that suppliers, laborers, and subcontractors are paid properly and promptly. Without a payment bond, any party not paid according to the terms of the contract could file suit, and a lien could be placed on the property. Requiring the contractor to obtain a payment bond ensures that the property will be lien-free when the project is completed.

Bid Bonds

Bid bonds are not specifically mandated by the Miller Act, but they are commonly required by both public works and private project owners. A bid bond is the contractor’s pledge to accept the job if chosen as the winning bidder. This guarantee protects the project owner against having to go through the bid evaluation or contract negotiation process again with another contractor. A bid bond requirement is intended to discourage frivolous bidding.

How Do Construction Bonds Work?

When a claim is filed and proven to be valid, the surety typically pays the claim up front and then seeks reimbursement from the contractor. Surety bond contracts contain indemnity clauses that make the contractor legally responsible for repaying the surety.

How Much Do They Cost?

The cost of any bond is a small percentage of the required bond amount. While the bond amount is established by the obligee requiring the bond, the premium rate you will pay is determined by the surety�the company that underwrites and issues the bond. The exact percentage is based on an evaluation of such factors as the applicant�s personal credit, personal and business financial standing, and industry experience.

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Take advantage of our vast experience in the surety bond business to help you obtain any construction bonds you need. Apply today through our convenient online form!

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Understanding The Surety Bond Underwriting Process

Mar 20 Posted on

If you are in need of a surety bond, it�s important to understand the steps required. Read on to learn more about the surety bond underwriting process, or request a quote today. At Single Source Insurance, we offer bonds nationwide, and our knowledgeable agents are ready to assist you with any questions you may have.

What Is Underwriting?

Underwriting is all about the assessment of risk, specifically financial risk. It�s the process through which an individual or institution decides to take on a given financial risk for a stated fee and under what circumstances. For example, if you�ve ever purchased life insurance, you may have had to undergo a physical exam. You were likely asked your age, your height and weight, and certain other key facts that the underwriters then used to determine your likely life expectancy, insurability, the terms and conditions of your policy, and the premium cost you would pay.

Surety bond underwriting is much the same. The underwriters� job is to determine the degree of risk involved in issuing a given type of bond to a given applicant and the premium cost to the applicant.

What Are the Risks?

Different types of surety bonds carry different risks in terms of the ways in which the bonded individual (the principal in the surety bond agreement) can incur a claim. But they all boil down to the principal committing a prohibited action or failing to perform a required one. In either case, the principal would be in violation of the terms and conditions of the surety bond, and the entity protected by the bond (the obligee) would be entitled to file a claim against the bond to recover any resulting financial loss.

The bond forms filled out by surety bond applicants spell out the principal�s obligations under the bond and reflect the governing regulations, statutes, and ordinances. The obligee that requires and is protected by the bond establishes the required bond amount, also known as the penal amount of the bond.

The underwriters need to learn enough about the applicant to determine:

  1. The risk that the applicant will somehow violate the terms and conditions of the bond to the financial detriment of the obligee
  2. The applicant�s ability to come up with the funds to pay any valid claim up to the full penal amount.

The Three C�s of Surety Underwriting

Surety underwriters examine certain facts to establish confidence in each applicant�s character, capacity, and capital. A principal with good character is less likely to engage in unlawful or unethical behaviors that could result in a claim against the bond. A principal with the capacity (skills, knowledge, and resources) to live up to the terms and conditions of the bond is also unlikely to incur claims. And capital enters into the picture because the principal is ultimately financially responsible for paying all valid claims.

What Do Surety Underwriters Consider?

One of the key factors that surety underwriters consider is the applicant�s credit score. A principal with good credit will pay a lower premium rate than one with poor credit, because a good credit score means that the principal should be able to borrow money if necessary to pay a claim.

This is important because surety bonds do not transfer the financial risk of paying claims to the surety company. Virtually all bonds contain indemnity clauses that provide financial protection for the surety. The surety typically will pay a claim as an interim measure, but the principal is then legally obligated to reimburse the surety. Therefore, an applicant�s ability to borrow is crucial to establishing the confidence of the underwriters.

In addition to an applicant�s credit score, surety underwriters will want to see personal and often business financial statements as proof of capital and financial stability. In some instances, underwriters will request resumes or other proof of expertise and experience. In fact, the underwriters my request any documentation they feel is necessary to evaluate the applicant�s character, capacity, and capital.

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Single Source Insurance offers a full range of bonds nationwide. To get started, simply fill out our online application form. Our knowledgeable agents are ready to answer any questions you may have about the underwriting process.

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Common Small Business Bonds You Need to Know

Mar 20 Posted on

 

Surety bonds are grouped into several categories. Small businesses most often need or benefit from purchasing the types of bonds in these four broad categories: license and permit bonds, fidelity bonds, contract bonds, and commercial bonds. Learn more about each below to discover what bonds you may need for your business.

License & Permit Bonds

Many types of businesses are regulated at the state level through a licensing process. A business that must be licensed in one state may not require licensing in another. At the same time, some businesses that are not regulated at the state level must be licensed by certain municipalities in order to operate within those jurisdictions.

The list of occupations and professions requiring license and permit bonds is long and varied�from auctioneers and manicurists to funeral directors and plumbers.

License and permit bonds guarantee compliance with applicable laws, rules, and regulations, as spelled out in the terms of the bond. Violation of any of the bond terms can result in a claim being filed against the bond.

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Fidelity Bonds

Fidelity bonds are not mandated by any government entity. Business owners purchase them voluntarily to protect themselves against financial losses due to the dishonesty of their employees. There are two main types of fidelity bonds that small business owners buy: business services bonds and employee dishonesty bonds.

Business Services Bonds

Business services bonds are purchased by business owners whose employees perform services in customers� homes or business premises. Janitorial and cleaning services, landscapers, pool cleaning companies, and painters are among the businesses that commonly buy these bonds. A customer whose property is stolen or damaged by an employee of a company that is covered by a business services bond can file a claim against the bond to receive compensation for the loss. This is perceived by prospective customers as a competitive advantage.

Employee Dishonesty Bonds

Employee dishonesty bonds protect business owners rather than customers. They reimburse business owners for losses due to theft, embezzlement, or other crimes committed by employees. In most cases, there must be a criminal charge or even a conviction before a claim can be filed against the bond.

Contract Bonds

Contract bonds, also referred to as performance bonds, are commonly required in the construction industry. This can be true whether the contractor is a sole proprietor or a large corporation. A contract bond serves as the contractor’s guarantee to complete the project in accordance with the contract terms and all applicable rules and regulations. Again, any violation of contract terms can result in a claim against the bond.

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Commercial Bonds

States commonly require certain businesses that collect sales tax from customers to purchase a commercial bond. These bonds guarantee that those monies will be remitted to the appropriate state agency. Businesses involved in the sale of lottery tickets, alcohol, and tobacco are typically required to purchase commercial bonds.

Browse Commercial Bonds

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If you need further assistance determining the appropriate bonds for your small business, our knowledgeable agents are available to answer your questions. Contact us today!

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New Law Mandates Nebraska Public Adjuster Surety Bond

May 23 Posted on

A recently passed law means those seeking a Nebraska public adjuster license will need to get a surety bond.

Nebraska public adjuster

Interested in getting licensed as a Nebraska public adjuster? Following the passage of LB 743, you’ll now need to get a surety bond, too.

Surety bonds and LB�743

LB 743 was signed by Nebraska Gov. Pete Ricketts on April 23, 2018. The bill adopted Nebraska’s version of the Public Adjuster Licensing Act, a law that has been adopted by many U.S. states. Previously, adjusters were licensed as insurance producers with the state Department of Insurance (DOI); the agency will still issue their licenses.

The surety bond LB 743 introduces is a $20,000 Nebraska public adjuster license bond. As with all license surety bonds, it serves as the adjuster’s guarantee that they will adhere to the terms of their license and perform their job in accordance with the law. The bond is also a promise that if the adjuster does commit fraud or break the law and cause financial damage to any client, the client can seek reimbursement by filing a claim against the bond. Valid claims are paid out by the surety, and the bondholder must repay the surety for any paid claims. Brush up on what surety bonds are if being bonded is new for you.

Nebraska public adjuster licensing

LB 743 introduced a license that allows both business and individuals to become Nebraska public adjusters. Application, surety bond and other licensing forms are forthcoming from the DOI, but the bill has laid out the basics of how it will work. Here’s some of the criteria for application:

  • At least 18 years old
  • Principal place of residence or business in Nebraska
  • Pass the licensing exam and pay applicable fees
  • Trustworthy, reliable, and of good reputation

Nonresident public adjuster applicants must be licensed in good standing in their home state.�Business entities seeking this license need to designate a licensed public adjuster as being in charge of the business’s compliance with insurance law and all state rules and regulations. Take a look at the bill in its entirety to learn more about licensing specifics.

The method for calculating public adjuster licensing expiration is a little confusing: licenses expire on the last day of the month in which the adjuster was born in the first year following licensing that the adjuster’s age is even. For example, if the public adjuster was born in October and licensed the year they turned 30, their license would expire on October 31 the year they turn 32. Business licenses expire on April 30 each year.

Are you a Nebraska public adjuster who needs a quote for your surety bond? Get your free quote � call Single Source Insurance today!

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How To Get An Iowa Car Dealer License

Apr 18 Posted on

Learn How To Get An Iowa Car Dealer License. We’ll teach you everything you need to know about dealer license requirements, bonding, and renewals.

Iowa motor vehicle dealers

Iowa motor vehicle dealers, like those in most states, need a license and surety bond. Keep reading to find out how to apply and why the bond is required.

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Motor Vehicle Dealer License Requirements

Iowa motor vehicle dealers are licensed by the state Department of Transportation (DOT). Here’s some of the information required by the license application:

  • Dealership name, address, email, and phone number
  • Type of ownership and names of any co-owners or partners
  • Addresses of any extension lots (must be in the same city or township as the dealership)
  • $75,000 surety bond

The DOT has several requirements for an Iowa motor vehicle dealer’s place of business, which include:

  • Office with telephone number listed under business name
  • Open for business at least 32 hours per week (Monday-Friday)
  • Repair facility (at least 14 feet by 24 feet for auto repairs)
  • Written zoning approval
  • Valid franchise agreement (if applicable)
  • Financial liability coverage
  • Indoor display space (new car dealers)
  • Indoor or outdoor all-weather display space (used car dealers)

Most used motor vehicle dealers will need to take an eight-hour pre-licensing course�see the Iowa Independent Automobile Dealers Association (IIADA) for more information on the course. Dealers also need to pay a few licensing fees, which may vary depending on the type of dealer license being applied for:

  • $70 license fee
  • $20 per extension lot
  • $70 registration fee
  • $40 per dealer plate

Iowa motor vehicle dealer licenses are valid for two years, expiring on December 31 in even-numbered years (like this one!).

Iowa Dealer Bonds

Iowa motor vehicle dealers need a $75,000 surety bond, which is on the higher end for the industry. It was increased from $50,000 in July 2016 by SF 2228. With a good credit score, you could pay as little as 1% of the total bond amount—that’s just $750. If your credit isn’t perfect, don’t worry. Single Source Insurance can help get you the best rate for your surety bond.

The surety bond is required to ensure Iowa auto dealers adhere to state laws, specifically Chapters 321 and 322 of the Code of Iowa. Prohibited actions—which could lead to a claim being filed against the bond or license suspension or revocation—include:

  • Selling vehicles other than those the licensee is licensed to sell
  • Selling vehicles from a location other than the licensed business location
  • Selling, loaning, or otherwise allowing another person to sell vehicles under their business license

Ready to get licensed and bonded as an Iowa motor vehicle dealer? Single Source Insurance is here to help!�

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Indiana Medicaid Transportation Providers Need a Surety Bond

Apr 4 Posted on

Indiana Medicaid transportation providers

Indiana Medicaid transportation providers need to be enrolled and have a bond on file with the state. Keep reading to find out how to enroll and get a surety bond.

How to enroll

Medicaid transportation providers in Indiana enroll with Indiana Health Coverage Programs (IHCP), but their enrollment and the surety bond are required by the Office of Medicaid Policy and Planning (OMPP). There are several different types of Medicaid providers that enroll with IHCP, and transportation providers’ type code is 26. Transportation providers also choose a specialty:

  • 260 – Ambulance
  • 261 – Air ambulance
  • 262 – Bus
  • 263 – Taxi
  • 264 – Common carrier (ambulatory)
  • 265 – Common carrier (non-ambulatory)
  • 266 – Family member

Enrolling as a Medicaid transportation provider allows businesses to transport Medicaid recipients. All applicants need to complete the IHCP’s�enrollment form, and consult the Provider Enrollment Type and Specialty Matrix to which other documents need to be included. Here’s some of the documents required if you’re enrolling as a type 264 or 264 Medicaid transportation provider:

  • Provider Agreement
  • W-9 form
  • Copy of all drivers’ licenses for all drivers
  • Application fee
  • $50,000 surety bond (for-profit providers only)
  • MCS certificate from the Indiana Department of Revenue (for-profit providers only)
  • Proof of nonprofit status if applicable
  • USDOT number (interstate carriers only)
  • Proof of insurance
  • Fingerprints and background checks

Check the Matrix to see the documentation your specialty needs to provide. You can enroll through the IHCP Portal or you can submit your enrollment form and documents to:

Provider Enrollment Unit
P.O. Box 7263
Indianapolis, IN 46207-7263

Getting an Indiana Medicaid transportation provider surety bond

Businesses enrolling as taxis and for-profit ambulatory or non-ambulatory carriers are required to get a $50,000 surety bond. Ambulatory means that clients being transported can walk to get in and out of the vehicle, while non-ambulatory means that clients are transported in wheelchairs. The bond is required to protect against the filing of “duplicate, erroneous, or false” Medicaid claims. The bond needs to remain in effect for at least three years after the Medicaid transportation provider enrollment is submitted.

Ready to get bonded in Indiana? Get in touch with Single Source Insurance for a free surety bond quote!�

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Alabama Bills Require a Dangerous Dog Surety Bond

Apr 2 Posted on

dangerous dog

In Alabama, HB 204 and SB 232 were recently signed into law. Both bills involve a surety bond requirement for those who own a dangerous dog in the state.

Emily’s Law

SB 232 is also known as Emily’s Law in memory of Emily Colvin, a 24-year-old woman who was attacked and killed by five dogs in Alabama last December. The law creates a felony charge for owners of dangerous dogs that injure or kill people, and creates a registration procedure for the owners of some dangerous dogs.

If a dog is reported as dangerous, the dog can be impounded by animal control or law enforcement � the dog’s owner is liable for costs associated with impounding. While the dog is impounded, an investigation will determine whether or not it will be considered dangerous. Dogs that are determined to be dangerous, and it caused serious physical injury or death, it will be euthanized. However if the dog is determined to be dangerous but has not caused serious injury or death, the judge may

There are several instances under which a dog will not be considered dangerous, even if it did cause injury or death:

  • If the person was attacked while trespassing and committing a crime or intending to commit a crime.
  • If the person was tormenting or teasing the dog when they were attacked, or if the person repeatedly did so in the past.
  • If the dog was protecting a person from assault by the person who was attacked.
  • If the dog attacked in response to pain or in protection of self, kennel, or offspring.
  • If the dog attacked when disturbed while sleeping or eating.

Emily’s Law also states barking and/or growling does not classify a dog as dangerous.�If the dog is considered dangerous and the owner is allowed to keep it, they’ll need to adhere to Emily’s Law procedure and register the dog with local animal control or health department within 30 days and renew registration annually. Owners must be 18 years old or older, and need to provide this information with registration:

  • Certificate of current rabies vaccination
  • Current photo of dog
  • Evidence that the dog will reside in a proper enclosure
  • Evidence that the dog is spayed or neutered
  • Dog must be microchipped or identifiably tattooed
  • No less than a $100,000 surety bond
  • Written permission from property owner allowing dog to reside at the property

Dangerous dog owners must also provide a notarized affidavit confirming that the dog will be under the control of a person over 18 if they are not in their enclosure or indoors, and that the dog will not leave the property unless in case of emergency or for regular medical treatment. Dangerous dog owners must also pay a registration fee and provide the proper enclosure within 30 days of the court’s decision. Read Emily’s Law in its entirety to learn what a proper enclosure entails and for more details.

HB 204 does much the same thing that Emily’s Law does, establishes a procedure for how a dangerous dog is labeled as such and creates a surety bond requirement for dangerous dog owners in some instances. In particular, HB 204 outlines specific penalties and procedures for dangerous dog owners that live in unincorporated areas of Chilton County, Alabama.

What does the bond do?

If their dog is declared a dangerous dog, the owner is required to get a surety bond as a means of protecting the public and the state from liability. The surety bond must be at least $100,000. In the event that the dangerous dog commits dangerous actions in the future, the surety bond provides a means of recovering medical and veterinary costs that result.

Ready to get an Alabama surety bond? Single Source Insurance is ready to help you get bonded � get in touch today!�

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Virginia HB 63 Repeals Surety Bond Option for Private Security Businesses

Mar 30 Posted on

private security

Photo by�Rob Sarmiento on Unsplash

House Bill 63 was passed in Virginia earlier this month, and it includes the repeal of a surety bond private security businesses could opt to use. The bill and bond repeal take effect on July 1, 2018.

What surety bond is being repealed?

The Virginia Department of Criminal Justice Services requires those providing private security services to become licensed. The Department offers seventeen different types of security services licenses, including:

While many of these are individual licenses, private security services businesses are businesses that offer the services of any of the license classifications. HB 63 applies to business licenses, not individual licenses, and to certified private security services training schools.

Before HB 63’s passage, private security services business licensees could submit a surety bond in lieu of submitting proof of liability insurance coverage. HB 63 is removing that option, meaning licensees now need liability insurance. Check with the Department to ensure you obtain coverage in the proper amount.

If you maintained this bond previously, cancel the bond and obtain the required liability insurance. Failing to obtain proper insurance could result in fines of up to $2,500 per day, and the Department could suspend or revoke your license.

What else does HB 63 do?

HB 63 is not only a surety bond repeal. It also eliminates an experience requirement for private security business’ compliance agents. Compliance agents are individuals designated to ensure the business’s compliance with all state laws that apply to their license. Starting in July, compliance agents will no longer need to have either:

  • Three years’ managerial experience at a private security services business or law enforcement agency
  • Five years’ experience at a�private security services business or law enforcement agency

If you have more questions about this surety bond repeal, contact the Department of Criminal Justice Services. If you need a different surety bond, get in touch with Single Source Insurance today!

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