Surety bonds

Construction companies and contractors typically need construction bonds and insurance, and in some locations, general contractors must carry a bond to obtain a license. The amount of the bond is specified by state law or the client.

The construction industry has several types of surety bonds, such as:

• Bid bonds guarantee the business will fulfill a contract as outlined in a bid for a project.
• Performance bonds guarantee that a project will be completed according to the client's specifications.
• Payment bonds guarantee all involved parties, including subcontractors, will be paid.
• Maintenance bonds protect the project owner from the cost of any defects found after work is completed.

Business owners who provide professional services often need a bond in order to sign a contract with a client or comply with state requirements for their profession. For example, state laws usually require notary bonds that protect the public from potential errors made by a notary public.

Wholesalers may also need surety bonds, usually to reassure clients that they'll deliver products as promised in a contract.

Insurance professionals often need to get bonded before they can obtain a license and legally go into business. The requirements vary by state. For example, New York insurance adjusters must carry a $1,000 surety bond in order to get their license.

Surety bonds are often required by state law for both new and used auto dealers. An auto dealer bond protects the public from fraud or misrepresentation by the dealer.

Clients often require cleaning companies to carry bonds, which in this case are called janitorial bonds. If one of your employees steals jewelry or cash from a client, the insurance company will reimburse the client up to the bond amount.

Surety bonds do not work like standard small business insurance policies, which pay out claims to the policyholder. Instead, surety bond claims are paid to the client (also called the obligee). For example, if your small business fails to complete a construction project, the surety company will reimburse your client.

Unlike an insurance policy, you must pay this amount back to the insurer or surety bond company. In a way, a surety bond is more like a line of credit than insurance.

A surety bond offers a financial guarantee that an insurance company will reimburse your client if your business doesn’t complete a project, breaks the terms of a contract, or fails to adhere to regulations.

When you first start working with a client, they may ask you to purchase a surety bond in a specific amount before they'll allow workers on their premises. State laws often have surety bond requirements before you can get a license or work legally in a certain profession.

For example, you may need a surety bond to sign a construction contract, or work for your local government on a project.

Surety bonds protect your clients from financial loss, which means they may be willing to work with your company even if your business is relatively new. They can rest assured you'll meet contractual obligations, or reimburse them fully if the bond requirements are not met.

You'll want to research the laws in your state to make sure you're carrying all the necessary bonds and insurance for your profession. You can also consult with an insurance agent who can help you find the right coverage.

It's easy to get a surety bond and business insurance with Insureon.

First, fill out our free online application to get quotes for general liability insurance, workers' compensation insurance, and other policies. Then, chat with an agent if you'd like to add a surety bond to your coverage.

We'll help make sure you get the right coverage, without paying too much for insurance and bonds.

A company is bonded when it has a surety bond. It's insured when it has other insurance policies, such as general liability insurance or workers' compensation insurance. Finally, it's licensed when it has obtained the licenses necessary to operate legally.