Surety Bonds
A bond is not insurance. It's a three-party guarantee that you (the principal) will perform an obligation to someone (the obligee), backed by a surety company. We place bonds for license, contract, court, and fidelity needs across all 11+ states we serve, often same-day.
What it is.
The three parties on every bond are the principal (you), the obligee (the party requiring the bond, often a state or a project owner), and the surety (the insurance company guaranteeing performance). If the principal fails, the surety pays the obligee, then the surety comes after the principal for reimbursement. That's why bonds are guarantees backed by your personal indemnity, not insurance you collect on yourself.
Most bonds we write fall into four buckets. License and Permit Bonds are required by states and municipalities to hold a contractor, auto dealer, freight broker, mortgage lender, or other regulated license. Contract and Performance Bonds guarantee construction project completion. Court Bonds are required in litigation (appeal bonds, probate, fiduciary). Fidelity Bonds protect a business from employee dishonesty.
Below is what each type actually does, how pricing works (it's based on your credit, NOT your business risk in most cases), and the two questions that determine how fast we can get a bond placed for you.
Contractors bidding public work, regulated professionals required to hold a license, anyone in a court action requiring a bond, anyone administering an estate or trust, and any business wanting protection against employee theft.
What it covers.
Each policy is a stack of named coverages. Required parts are mandated by state law. Recommended parts are what we put on most policies. Optional parts depend on your situation.
License and Permit Bonds
Required by state or local government to obtain a license or permit. Common for contractors, auto dealers, freight brokers, mortgage lenders, notaries, plumbers, electricians. Bond amount is set by the licensing authority (typically $5,000 to $50,000). Premium is a small percentage (usually 1% to 5%) of the bond amount per year.
Contract / Performance Bonds
Required on most public construction projects and many private ones. Guarantees the contractor will complete the work per contract. Includes Bid Bonds (guarantee the contractor will sign if awarded), Performance Bonds (guarantee completion), and Payment Bonds (guarantee subs and suppliers get paid). Premium typically 0.5% to 3% of contract value.
Court Bonds
Required in legal proceedings to guarantee performance of a court obligation. Includes Appeal Bonds (delay enforcement during appeal), Replevin Bonds (recover property pending litigation), Injunction Bonds, and Release of Lien Bonds.
Probate and Fiduciary Bonds
Required when an individual is appointed to administer an estate, trust, or guardianship. Guarantees the fiduciary will perform their duties faithfully and account for assets handled. Bond amount typically equals the value of assets under administration.
Fidelity Bonds (Employee Dishonesty)
Different from surety. Fidelity bonds protect a business from financial loss caused by dishonest acts of employees (theft, embezzlement). Often required by clients (especially for cleaning and service businesses entering homes) or by ERISA on retirement plan administrators.
Subdivision / Site Improvement Bonds
Required by municipalities when a developer must complete site improvements (roads, sewers, lighting) before final acceptance. Common in real estate development.
Customs and Excise Bonds
Required by federal agencies for businesses involved in import/export, alcohol distribution, fuel distribution. Specialty market.
Public Official Bonds
Required for elected and appointed officials handling public funds. Common for treasurers, tax collectors, court clerks.
When it kicks in.
Real situations we see in the agency. The point is to show how each layer of coverage maps to actual life, not to scare you.
Contractor bidding a $400K municipal project
Town requires a Bid Bond at submission, then a Performance Bond and Payment Bond at award. We pre-qualify the contractor with the surety, line up a $400K bond capacity, and have all three issued in time for the bid deadline.
Auto dealer renewing license
State requires a $50,000 dealer bond annually. Premium ranges from 1% to 3% of bond amount based on credit. Renewal is usually same-day with a stable file.
Executor of a parent's estate
Probate court requires a fiduciary bond equal to estate value (e.g., $750K). Premium is a small percentage. Required documentation includes the will, court order appointing the executor, and a personal financial statement.
Litigant appealing a $200K judgment
Appeal Bond required to delay enforcement of the judgment during appeal. Court usually requires 100% to 150% of the judgment value. Often higher rates than other bond types because of the open litigation.
Cleaning company needing employee dishonesty coverage
Client requires a $25,000 fidelity bond as a condition of the cleaning contract. We bind same day with most carriers. Adds about $200 to $400 a year to the policy.
Key terms.
Plain-English definitions. The vocabulary insurance carriers assume you already know.
- 01Principal
- The party required to obtain the bond and perform the obligation. The business owner.
- 02Obligee
- The party requiring the bond. State licensing authority, project owner, court, beneficiary of an estate.
- 03Surety
- The insurance company issuing the bond. Backs the principal's obligation to the obligee.
- 04Indemnity Agreement
- What you sign in exchange for the bond. Personally promises to repay the surety if a claim is paid. This is why bonds depend on personal credit and financial strength.
- 05Bid Bond / Performance Bond / Payment Bond
- The three construction bonds. Bid: guarantees the contractor will sign if awarded. Performance: guarantees the work will be completed. Payment: guarantees subs and suppliers get paid.
- 06Single and Aggregate Capacity
- How much bond the surety will write on one project (single) and across all your projects at once (aggregate). Capacity grows as you complete bonded work successfully.
Common questions.
Questions clients ask before they get on the phone with AJ. If yours isn’t here, just call.
No. Insurance pays YOU for a covered loss. A bond is a guarantee that pays the OBLIGEE if you fail to perform, then comes after YOU for reimbursement. Bonds are backed by your indemnity.
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