Surety Bond; Necessities, Types, Inspection, and Security

What are Surety Bonds?

Surety Bond is a guarantee that contractors will complete their agreed project with their clients. It also reassures that contractors’ completed work complies with the federal, state, and municipal regulations. Surety Bond is a contract binding of three parties, the principal, surety, and obligee.

Firstly, the principal is the individual or business who needs to obtain a bond. Secondly, the surety is the insurance company that underwrites the bond and guarantees that the principal will meet the agreed conditions required by their clients. If the principal fails to carry out its tasks, the surety company will cover the resumptions’ costs. Lastly, the obligee is the government body or client that requires the bond.

Surety Bond Why Do Workers Need Surety Bond?

Surety Bond is a relevant factor for businesses because it compensates the obligee if the company fails to pass their contractual obligation. Additionally, contractors who are licensed by government companies are mandated to purchase Surety Bonds. As a matter of fact, Limited Liability Companies in California are required to have their LLC Employee Workers Bond first before getting their license.

LLC Employee Workers Bond makes sure that LLCs will pay wages, fringe benefits, and provide other contributions for their employees. Aside from LLC Companies, all types of small businesses that need licenses from the government must obtain an Employee Workers Bond. Many people think that Surety Bond is a type of insurance policy. For that reason, when it comes to bonding, Surety Bond Insurance and Surety Insurance are used interchangeably.

How Much Do Surety Bonds Cost?

The level of risks and the value of the bond affects the cost of your Surety Bond premium. The LLC Employee Worker Bond is based on the credit score and other required financial information in California.

Even if you have a bad credit record or a low credit score, you can still get bonded. Surety Bond costs are calculated depending on each specific case. You can work on your credit score over time to improve your bond rate.

Different Types of Surety Bond

There are several different types of Surety Bonds. Each type financially covers obligees throughout a series of potential risks. Below are the types of Surety Bond that is best to acquire for your needs:

Professional Liability Insurance

Government agencies require businesses to have Commercial Bonds in order to protect public interests. They will require bonds to certain sectors of brand new companies. This includes businesses who go through licensing and permit for applying their own Commercial Surety Bond, such as liquor construction. Below are the types of Commercial SB:

License and Permit Bonds: These bonds are required by government associations when business owners apply for a license. The most common principals who are required to have Licenses and Permit Bonds are contractors and electricians.
Mortgage Broker Bond: Mortgage Broker Bond assures that mortgage brokers comply with federal ordinances. It secures borrowers if mortgage brokers commit mistakes or biases.

Commercial General Liability (CGL)

Contract Bond guarantees that the principal will comply with the descriptions written on the construction contract. It protects the obligee when the contractor fails to accomplish the project properly. It also protects the client from business malpractice that contractors may carry out. Here are the types of Contract Surety Bonds:

Bid Bonds: Bid bond ensures the obligee in a construction bidding process. It is a guarantee that the obligee will be compensated in case the principal fails to adhere to the conditions of the bid.
Performance Bonds: It protects the obligee or the project owner if the contractor fails to meet the obligations under the contract. Performance Bonds are usually offered by banks and insurance companies.
Payment Bonds: Payment Bonds guarantee that contractors will pay their subcontractors and material suppliers in accordance with the bonded contract.

Court Bonds

Court Bond is a guarantee that the principal will perform all of its responsibilities as required by law. It provides protection from any possibility of a loss during court cases. The common principals who apply for Court Bonds are plaintiffs, defendants, and estate administrators. Here are the common types of Court Surety Bond:

Judicial Bond: Judicial Bond reduces the losses that could result from a court decision. It secures the rights of the plaintiff or defendant in litigation.
Fiduciary Bond: This bond ensures that individuals or parties will ethically accomplish their tasks according to the court’s mandate. A Fiduciary Bond is also called a Probate Bond.

Damages to Premises Rented To You

Fidelity Bonds protects business owners when their employee commits deceitful acts. It is an essential type of bond for companies who carry out mass hiring’s or hire seasonally. Moreover, it ensures companies from physical or monetary losses. Here are the types of Fidelity Surety Bond:

Business Services Bond: Business Service Bond protects a company from employee theft as well as customer’s loss of equipment, money, or personal supplies.
Employee Dishonesty Bond: It protects employers from workers’ dishonest behavior and is usually bought by nonprofit companies.

Workers Bond

If you’re a business owner who wants to take up a self-insurance agreement with your state, you will need to acquire Workers Bond Insurance. Workers Bond or Workers Surety Bond Insurance is a guarantee that all payments due to workers will be compensated.

Claims will arise if you fail to provide worker’s compensation payments. Workers Surety Bond will then compensate for the amount due up to the bond amount. Therefore, as an employer, you are financially bound to reimburse all claims that are paid by the surety.

Overall, as clients hire contractors for professional services, they trust contractors to provide the best quality services. However, there’s no full guarantee that a project will be complete without any casualties when it comes to contracting works. Therefore, if you have a contracting business, Surety Bonds can be very beneficial for you. Surety Bond financially guarantees the obligee that the principal will properly complete the specified project according to the settled contract. The obligee can file a claim to retrieve the losses if the principal fails to fulfill the tasks. Contact Us if you want to learn more about Surety Bond programs that are right for your contracting business. Get a Surety Bond Quote Today.