How much does a surety bond cost?
A surety bond is a contract between a person and a bonding company that promises to pay a specific sum if the person fails to satisfy their commitments. In this arrangement, the individual or ‘principle’ promises to work for a business or customer, while the bonding agency agrees to pay damages if the principal fails to fulfill his obligations.
Depending on creditworthiness and relevant expertise, surety bonds normally vary from 1 to 10% of the total bond amount. A greater down payment might mean a lower interest rate, whilst a lack of collateral could mean a higher rate. It’s vital to keep in mind that these are only general recommendations that vary depending on the insurance company. Furthermore, some rules (such as local city bylaws) might have an impact on the total cost of a surety bond.
Self-insuring with cash or other assets is nearly always more expensive than using surety bonds (if you could afford it). Because many insurance companies provide free online quotes, it’s also an easy way to make oneself appear competent and reputable without spending a lot of time or money up front.
Is obtaining a surety bond costly?
Surety bonds are not excessively expensive if you shop around or speak with an experienced bonding firm. The average cost of a surety bond is 1% to 4% of the total bond amount; this percentage varies depending on your line of business, how much experience you have in your trade, the type of bond you need (i.e., license and permit, commercial general liability, etc. ), where you live (bond premiums must be approved by insurance regulators), and other factors.
For example, a surety bond for a restaurant may cost 3% of the total amount, whereas a surety bond for a contractor with 25 years of expertise might only cost 1%. You should expect to pay roughly $500 or less for a professional surety bond.
What considerations go into deciding a surety bond’s price?
The cost of a surety bond is determined by the type of work and the creditworthiness of the contractor. Contractors with strong credit and established client ties could expect to pay less than those with weak credit and no current customer relationships.
All prospective clients, not only those who are given contracts, must fund their own expenses. The possibility of being awarded the contract influences prices since it reflects your company’s track record of accomplishment.
Contractors with a better financial track record often pay lower rates than those who have had defaults or bankruptcy proceedings filed against them. Contractors with a history of bankruptcy and poor credit will pay much higher rates than those who have never filed for bankruptcy.
What happens if I don’t have a surety bond?
Insurance firms and self-insurers are required to deposit a bond under the Workers Compensation Law. All businesses must have a workers’ compensation coverage or a certificate of self-insurance. If you are a third-party administrator operating on behalf of an employer who has a policy with us, you do not need to have your own bond. You will be protected by our bond when performing services on behalf of the employer whose name appears on the insurance.
We’ll also take away your ability to make immediate payments on claims. We’ll reinstate your claim-paying permission once the surety verifies coverage if you file for a bond with an eligible surety later.
If you haven’t been bonded by the time of our next yearly audit, we’ll terminate your ability to pay claims. You won’t be allowed to reapply unless you can demonstrate that you have a current, valid surety bond that meets the requirements.
Is it feasible to bargain for a surety bond’s price?
While most sureties can charge varied costs based on the creditworthiness of their customers, some have flat-rate pricing schemes. On the other hand, some organizations may negotiate for individual customers who they think have a compelling case and require assistance in obtaining bonding capacity. Inquiring about an insurer’s contract conditions is a great way to discover more about what they could be prepared to do for your company.
Most assurance organizations establish the same sorts of fees for all firms, so that even if numerous package options are available, the insurance costs are all the same. Some firms, on the other hand, are more adaptable than others, and they will look into the unique nature of each company’s demands to make sure that all criteria are satisfied.
The most crucial thing to keep in mind is that any pricing changes or discussions must first go via the underwriting department. If you feel your situation merits it, ask them for better price options if they provide other package plans; but, if your existing firm does not, you will have to hunt for a cheaper cost elsewhere.