What is the cost of a surety bond?
A surety bond is a contract between a person and a bonding firm that guarantees payment of a specified amount if the person fails to meet their obligations. The individual or ‘principal’ commits to work for a firm or client in this contract, while the bonding agency agrees to pay damages if the principal fails to perform his duties.
Surety bonds typically range from 1 to 10% of the overall bond value, depending on creditworthiness and appropriate experience. A larger down payment may result in a lower interest rate, whilst a lack of collateral may result in a higher interest rate. It’s important to remember that these are merely broad guidelines that differ from one insurance provider to the next. In addition, certain laws (such as local city ordinances) can influence the overall cost of a surety bond.
Surety bonds are almost always less expensive than self-insuring with cash or other assets (if you could afford it). Because many insurance firms give free online quotations, it’s also a simple method to make yourself look like a professional and respectable organization without investing a lot of time or money up front.
Is it expensive to get a surety bond?
If you search around or chat with experienced bonding agents, surety bonds are not prohibitively expensive. The average cost of a surety bond is between 1% and 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 require (i.e., license and permit, commercial general liability, etc. ), where you live (bond premiums must be approved by insurance regulators), and other factors.
A surety bond for a restaurant, for example, might cost 3% of the entire amount, but the same surety bond for a contractor with 25 years of experience might cost only 1%. On a professional surety bond, you may anticipate to pay around $500 or less.
What factors go into determining the cost of a surety bond?
The cost of a surety bond is determined by the nature of work and the contractor’s creditworthiness. Contractors with good credit and existing client contacts should expect to pay cheaper rates than those with bad credit and no established client relationships.
Not just those who are awarded contracts, but all prospective customers must cover their own expenditures. Rates are influenced by the chance of being given the contract, as this demonstrates your track record of company success.
Contractors with a stronger financial track record will often pay lower premiums than those with a history of defaults or bankruptcy cases against them. Contractors with a history of bankruptcy and low credit, on the other hand, will pay significantly higher rates than those who have never filed for bankruptcy.
If I don’t have a surety bond, what happens?
Under the Workers Compensation Law, insurance companies and self-insurers are required to post a bond. A workers’ compensation policy or certificate of self-insurance is required for all firms. You do not need to have your own bond if you are a third-party administrator working on behalf of an employer who has a policy with us. While executing services on behalf of the employer whose name appears on the policy, you will be covered by our bond.
We’ll also take away your ability to pay claims right away. If you apply for a bond with an acceptable surety later, we’ll restore your claim-paying authorization once the surety verifies coverage.
We’ll revoke your permission to pay claims if you haven’t been bonded by the time of our next annual audit. You won’t be able to apply again until you can show that you have a current, valid surety bond in place that matches the standards.
Is it possible to negotiate the price of a surety bond?
While most sureties can charge different prices to different customers depending on their creditworthiness, some have flat-rate pricing structures. Some organizations, on the other hand, will negotiate for specific clients who they believe have a compelling case and require assistance in getting bonding capacity. Asking an insurer if they can give you information on their contract terms is a fantastic method to learn more about what they could be willing to accomplish for your organization.
Most surety organizations set the same types of costs across all businesses, so that even when multiple package alternatives are offered, they all have the same insurance cost. Some organizations, on the other hand, are more flexible than others, and they will examine the specific nature of each company’s requirements to ensure that all needs are met.
The most important thing to remember is that any pricing modifications or negotiations must go through the underwriting department. If you believe your case deserves it, ask them for better pricing possibilities if they provide different package plans; but, if your current business does not offer alternate rates, you will need to look for a lower cost elsewhere.