Types of Surety bonds

• Title Bonds
• Sales Tax
• DMEPOS (medicare)
• License & Permit
• Public Official
• Probate and Other Court Bonds
• Miscellaneous Surety Bonds
• Contract Performance Bonds
• Dealer Bonds

License & Permit

License bonds guarantee the Principal will comply with applicable codes and regulations established by the Obligee. (The Obligee is usually a government entity such as a City, Town, or State.)

Permit bonds grant a Privilege.

Types include:

• Electrician’s license
• Plumber’s license
• General Contractor’s license
• Driveway permit
• Sign permit
• Sales tax

Example: Electrical contractors may be required to post a surety as part of their licensing requirements. The obligation of it may specify that the contractor will follow the electrical codes established in that city, town, or municipality.

The requirements and ordinance must be understood before is written. The agent may ask you to obtain a copy of the ordinance or law that specifies the requirements and a copy of the bond, if the Obligee has its own.

Depending upon the type of obligation, supporting documentation such as signatures, financial statements, and other supplemental information may be required. 
Public Official

A Public Official guarantees that elected or appointed officials will faithfully perform their duties. The amount as well as duties are usually specified by statute or ordinance.

Types include:

• Treasurers
• Tax Collectors
• Peace Officers
• Judges
• Hunting & Fishing license agents
• Notaries.

It should be noted that not all public entities require Public Officials to be bonded.

Underwriting aspects of Public official bonds include understanding the duties required of the Official, the reputation (character) of the official, and experience of the official. 
Probate & Other Court

A Probate guarantees an honest accounting and faithful performance of duties by fiduciaries/trustees. These bonds are required by courts or statutes as estates of deceased persons, incompetent persons, and minors are set up and administered. (For the estates)

Types include:

• Administrator
• Executor
• Guardian
• Conservator
• Trustee.

A Bankruptcy or Equity bond might be required of an appointed fiduciary for the sale of real estate or for property in foreclosure, reorganization or other litigation. This bond guarantees an honest accounting and performance of duties while managing and distributing the assets as directed by the court.

Common types include Receivers and Trustees.

Other Judicial bonds may be required by a court in cases where someone is seeking legal benefit or relief. These court bonds can be extremely hazardous. Specific supplemental information may be required.

Types include:

• Appeal
• Injunction
• Attachment bonds
• Release of lien.

Miscellaneous Bonds

Miscellaneous surety bonds include those that do not fit into any of the other surety categories. These are usually more hazardous obligations.

Types include:

• Utility payment guarantees
• Lost Security/Lost Instruments (cashier’s check, stock certificates, and municipal bonds)
• Union Wage & Welfare.

Miscellaneous surety bonds require more extensive underwriting because the guarantee to the obligee is monetary. In addition to the application, supporting information such as signatures, financial statements, and other supplemental forms are usually required. 
Contract Performance Bond

Simply stated, contract bonds guarantee the performance of a written contract according to its terms and conditions.

Types of Contract Bonds:

• Bid bond
• Performance bond
• Payment bond

A Bid bond guarantees that if a contractor is the low bidder on a project, he/she will enter into a contract and provide a Performance bond.

A Performance bond guarantees the contract will be completed according to its terms and conditions.

A Payment bond guarantees payment of laborers, subcontractors, and material suppliers.

Example: An electrical contractor may need contract bonds to guarantee the performance of construction contract or to guarantee the supply of goods and materials. Most public works projects required Bid, Performance, and Payment bonds from the contractor. These bonds will guarantee the contractor’s performance according to the terms of the contract with the project owner.

FAQS

What is a surety bond?

Definition: In the simplest terms, a surety bond is a guarantee. What the bond guarantees varies depending on the language of the bond. It is a form of credit, not insurance.

What is the process to obtain a bond?

To start the process you need to apply. Your agent will usually have an approval for you anywhere from that same day to 4 business days. You will then be given your premium cost and an agreement between you and the bonding company. The bond is then issued 1-2 business days from receipt of payment and the agreement (original agreement is often required).

How do surety bonds work?

The principal (you) pays a percentage of the bond amount called a bond premium. In return, the surety extends “surety credit” to make the required guarantee (the bond). A claim can arise when the principal does not abide by the terms of the bond. In the event of a claim, the surety will investigate to ensure it is valid. If the claim is valid, the surety will look to the principal for payment 
of the claim and any associated legal fees.

What good is a bond if I have to pay for claims?

A bond is not insurance, it is a form of credit where the principal (you) are responsible to pay any claims. The alternative to a bond is to post cash or a letter of credit. Surety bonds are advantageous, as they typically require no collateral, which frees up capital. Bond premiums are also similar to fees for letters of credit and are typically less than one would earn making conservative investments with the available capital.

How much do surety bonds cost?

Bond premiums vary greatly depending on the applicant, the bond type, surety, and the obligee. Just like other forms of credit, everyone does not receive the same rate. Standard market rates are typically anywhere from 1-3%, while higher risk markets can range anywhere from 5-20% of the bond amount.

Why do I need a surety bond?

Simply because a government authority or private entity is requiring the bond in order for you to operate. The bond ensures you will follow their guidelines.

Who is the obligee?

The obligee is whoever is requiring the bond of you. You are not the obligee. For example, the obligee for a contractor would be whoever they are doing the work for. The obligee for a license bond (e.g. auto dealer or mortgage broker) would be whoever they are filing their license with.

What is a blank bond form and where do I get one?

It is a blank copy of the bond that you are required to post. It states exactly what the bond is guaranteeing. Your bond agency will use it to create the original bond by completing the blanks on the form, signing on behalf of the surety, and attaching a power of attorney. You need to obtain a blank copy of the bond form from the obligee.

What is the turnaround time?

Approval time varies depending on the type of bond and the program the applicant falls under. Some are approved immediately, others can take up to 1-4 business days. Bond issuance is typically 1-2 business days from receipt of payment and anything else required by surety for issuance of the bond.

Why does my spouse have to sign the indemnity agreement?

Bonding companies have several reasons why they would like your spouse to personally guarantee the bond. Keep in mind, a bond is a guarantee of something. The bonding company does the best they can to underwrite your policy, but have no way to gauge your character. A good way to do this is to have your spouse personally guarantee it, as they know you best. Spouses are also required to sign, as a married couples have joint assets, which may have to be sought after in the event of a claim.