When a company or business owners have a lot of money on the line during a business deal or with a client, just swearing by your word may not be good enough in terms of backing things up. This is where a surety bond comes in to help out.
A surety bond is a contract between three parties known as the principal, obligee, and surety. Surety bonds can financially guarantee that a principal will come through and fulfill a predetermined set of obligations to an obligee. The surety, in this case, is an insurance company or surety bond broker that supplies the guarantee to the obligee on behalf of the principal.
But while the basics are easy enough to understand, getting down to the nitty-gritty of it all deserves a deeper dive. Here are some frequently asked questions around surety bonds that can help shed some light when considering investing in them.
How much does it cost to get a surety bond?
The cost can vary for surety bonds depending on the type of bond and the amount of bond coverage that is needed. Surety bond premiums usually hover around 10 percent but can range from 1-15 percent of the total amount of the bond. The lower the rate, the lower you have to pay upfront.
What does a surety bond cover?
A surety bond is a three-party agreement, as mentioned above. The bond covers the financial aspect of an agreement, supplying the ability for everyone to honor their terms in a deal. If the principal violates the terms, the surety bond steps in to financially back the bond. If the company behind the surety bond pays out any claims made on the bond itself, the principal must reimburse the surety.
Who needs a surety bond?
Practically every industry can benefit from having a surety bond involved in the business process. For instance, the cryptocurrency market, which has jumped on to the major financial scene in recent years, is being touted as the next landscape for surety bonds to take over, insuring crypto miners and their investors.
In the construction industry, surety bonds are usually required for contractors who want to work on government contracts. They can also be required for persons and companies that are licensed by a governmental body.
Am I required by law to get a surety bond?
Some industries and some companies may be required to purchase a surety bond due to the nature of their work. Many government entities mandate the use of surety bonds for particular industries, acting as a preventative measure for consumer interests. Bonds are usually required before business owners can get a license to operate in a certain state or region.
Where do I get a surety bond?
There are a number of ways to go about receiving this kind of business deal protection. But you can get a surety bond from an approved surety agency, like Hilb Group, which has a team of surety specialists available to execute the bond quickly and effectively.
About The Hilb Group
Deciding what coverage you need and what limits and deductibles make the most sense can be tricky. Founded in 2009, the Hilb Group has been helping clients to make sense of their options and make the smartest choices for their circumstances. Whether you need Warehouse Insurance or any other type of business or personal coverage, we encourage you to contact our friendly, experienced, and capable team today. Call us at (800) 776-3078 for a consultation.