Surety bonds are required for a number of different purposes�in order to obtain a business license, to be awarded a construction contract, or to satisfy a court order, for example. They serve as the bonded individual�s pledge to act in accordance with all relevant laws, rules, and regulations, as spelled out in the surety bond contract. But how long are they good for? Let�s take a look.
How Surety Bonds Work and Their Importance in Business
Regardless of the purpose of a given bond, all surety bonds involve three parties who are bound together by a surety bond agreement. The obligee is the party who requires the bond and establishes the maximum amount that the bonded individual must pay to claimants. The principal is the party who is required to obtain the surety bond and maintain it for a specified period of time. The surety is the party that underwrites and issues the bond and renews it as needed.
During the period of time that the bond is in effect, a party who is harmed financially by the unlawful or unethical actions of the principal may file a claim against the bond. The surety verifies the validity of each claim before paying it as an advance on behalf of the principal. Ultimately, however, the principal is financially responsible for claims and must reimburse the surety for all payments made to claimants.
How Long Are They Good For?
License & Permit Bonds
Many of the surety bonds issued are license and permit bonds that must be purchased as part of the process of becoming licensed to conduct business in a particular profession. If you work in a profession or occupation that requires licensing in order for you to operate legally in your state, you’re likely to be required to obtain this type of bond. For example, all states have their own requirements for licensing as a motor vehicle dealer, and they all involve the purchase of a surety bond.
In such cases, there must be a bond in place at all times to avoid license revocation. This typically means renewing the bond at every license renewal to maintain continuous coverage. The bond agreement may specify a bond term length of one year or more, as long as the premium for the entire period is paid up front. The specific time period of your bond will be determined by the bond type and any regulations in place. For questions, contact our knowledgeable agents today.
Construction Bonds
Construction bonds typically have a coverage period for the entire duration of the construction project, though there can be some that extend beyond a project completion date. For questions, contact our knowledgeable agents today.
Court Bonds
Court bonds must be effective for as long as it takes to resolve the legal matter the principal is involved in. Or, the bond period may be specified for as long as the principal has fiduciary responsibility—for example as the guardian of a minor or executor of a state. For questions, contact our knowledgeable agents today.
Your Responsibility To Renew
Whatever the duration of the coverage period, it�s the principal�s responsibility to respond to the renewal notice from the surety and renew the bond by its expiration date. The surety will review the same factors considered when setting the premium for the original bond purchase and calculate the renewal premium that must be paid to keep the bond in force.
Get The Bonds You Need
Single Source Insurance offers a wide range of bonds with convenient online applications. We�ll work with you to get a surety bond with the coverage period you need.