Getting a surety bond is a confusing process, so we want to make it a little more simple. One of the murkiest parts of surety bonds are their cost�you might need a $25,000 surety bond, but how much will you pay for it?�Let’s take a look at how a surety bond’s cost is determined.
Bond type
There are countless different kinds of surety bonds, and they all carry different levels of risk for the surety that issues the bond. For example, notaries public in nearly every state need a surety bond, usually $5,000 or $10,000. These bonds are fairly low risk�the surety doesn’t assume much financial liability. So, they don’t require a credit check to be issued, meaning the applicant’s financial history doesn’t affect the bond premium.
On the other hand, auto dealers in most states are also required by law to get a surety bond. With most of these bonds being closer to $50,000, sureties issuing this bond are assuming more risk on the principal’s�behalf. High-risk bonds like these require underwriting, which means the applicant’s financial history (credit) is reviewed and taken into account when calculating the premium.
Bond amount and term
Since surety bond amounts can�vary widely, it follows that premiums do, too. Typically, they fall in the range of 1-10% of the bond’s total liability. A $25,000 bond could have a premium of anywhere from $250 to $2,500, once other factors are taken into account. Some low-risk surety bonds are issued to all applicants at a flat rate.
Determining your bond amount is the first step in gauging how much your surety bond will cost. While some licenses require a fixed bond amount, many do not. You can buy business service bonds in amounts ranging from $5,000 to $100,000, or you might be getting a mortgage loan originator’s license and the dollar value of loans you originate determines your bond amount. Once you know how much coverage you need, you’ll have a better idea of what your bond premium will be.
The bond’s term is another factor in its cost. Premiums are assessed annually, and some bonds have a two- or three-year term. Depending on your agreement with your surety company, you might pay for the full term up front�so $600 for a bond with a $200 annual premium and a three-year term�or you might pay the premium each year.
Principal’s financial history
With underwritten surety bonds, the financial history of the applicant is one of the most influential factors over the bond premium. If you have good credit, you can expect to pay a much lower percentage of the bond’s full amount. A $30,000 bond could cost you as little as $300. That’s because applicants with a strong financial history pose less of a risk to the surety�they’ve proven that they are financially trustworthy.
Applicants with a weaker financial history should expect to pay a higher premium for their bond, but it’s not impossible to get bonded.�Don’t worry if you have bad credit�work with Single Source Insurance to get the best rate for your bond.
More questions about your surety bond cost? Get in touch today and let the Single Source Insurance experts answer your questions.