What Are Surety Bonds?
Although some insurance companies sell surety bonds, a surety bond is not an insurance policy. While insurance protects the policyholder and any beneficiaries, a surety bond (with a very few exceptions) protects the entity that requires its purchase.
Every surety bond is a legally binding contractual agreement that brings together three parties:
- The �obligee� requiring the bond
- The �principal� purchasing the bond
- The �surety� underwriting and issuing the bond
The bond serves as the principal�s guarantee to operate in a completely lawful and ethical manner, in accordance with the terms of the surety bond agreement. By purchasing a bond, the principal accepts legal responsibility for compensating anyone harmed financially by the principal�s violation of that agreement. This protects the obligee from being held responsible by consumers and others for the bad acts of the principal.
Do I Need to Get Bonded?
There are a few key reasons why you might need to get bonded in Florida:
- To become licensed in a particular occupation or to conduct a certain kind of business (license and permit bonds)
- To bid or work as a contractor on a construction project (contractor bonds)
- To comply with the requirementsof a Florida court (court bonds)
- If any of these apply to you, you�ll be informed as to the bonding requirements you will need to meet, such as the specific type of surety bond, the required bond amount, and the duration of the bonding period.
There is another class of bonds�fidelity bonds�that protect employers against the bad acts of their employees. Unlike mandatory license and permit bonds, contractor bonds, and court bonds, fidelity bonds are purchased voluntarily.
Who Sells Surety Bonds?
Some insurance companies sell surety bonds, but your best bet is to purchase any surety bond you need from a company that is dedicated to selling and servicing surety bonds. As surety bond specialists, they have plenty of experience and a deep knowledge of many different types of surety bonds and the bonding requirements of the states in which they operate.
Be aware that a Florida obligee will accept only a surety bond that has been purchased from a company licensed to sell surety bonds in the state of Florida.
How Surety Bonds Work: Understanding the Process in Florida
The terms of a surety bond agreement specify what would be considered a violation of the agreement. Anyone financially harmed by such a violation can file a claim against the bond and be compensated for their loss.
It�s important to understand that as the principal in a surety bond agreement, you will bear full responsibility for paying claims. The surety is indemnified by that agreement against any legal obligation to pay claims.
Nevertheless, the surety will typically pay a valid claim upfront if it�s not possible to negotiate an amicable settlement with the claimant. That advance payment is simply a short-term extension of credit to the principal, and it must be reimbursed. It gives the principal a little time to pull together the necessary funds.
What Do They Cost?
Most surety bonds are sold for an annual premium that is a small percentage of the required bond amount. However, a few types of bonds, such as lost title bonds, are sold for a flat fee based on the required bond amount. Others, such as liquor license bonds, have a variable required amount that�s based on the prior year�s sales revenues.
While the obligee establishes the required bond amount, the surety sets a premium rate that reflects the amount of risk to the surety. The surety�s biggest concerns are the likelihood of claims being incurred and the principal�s ability and willingness to reimburse the surety for claims paid in advance.
The principal�s personal credit score, business and personal financials, and industry experience may all come into play in setting a premium rate. In general, a high credit score results in a low premium rate, and poor credit in a high rate.
Get Bonded Today
Call us today to discuss your Florida bonding needs, or request an online quote for the specific Florida surety bond you need.