How much does a surety bond cost?
A surety bond is a contract between an individual and a bonding company that promises the payment of a certain amount should the individual fail to fulfill their obligations. In this contract, the individual or ‘principal’ agrees to perform for a company or client, while the bonding agency agrees to pay damages if the principal fails to carry out his duties.
Surety bonds usually cost between 1-10% of the total bond value depending on factors such as creditworthiness and relevant experience. A larger downpayment may result in a lower interest rate, while being unable to provide collateral may increase interest rates. One must keep in mind that these are just general rules and vary from one insurance company to another. Also, there are some regulations (such as local city ordinances) that can affect the overall costs of a surety bond.
The cost of surety bonds is almost always less than it would be to self-insure through cash or other assets (if you could afford it). It’s also an easy way to make yourself look like a professional and reputable company without much upfront time or money investment since many insurance companies offer free online quotes.
Is a surety bond expensive?
Surety bonds are not expensive if you shop around or take the time to speak with experienced professionals in the bonding industry.
The average cost of a surety bond is between 1% and 4% of the total bond amount; this percentage depends on your line of work, how much experience you have in your trade, what 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, the cost of a surety bond for a restaurant might be 3% of the total amount, while the same surety bond for a contractor with 25 years of experience might cost just 1%. You can expect to spend approximately $500 or less on a professional surety bond.
How is the cost of a surety bond determined?
The premium charged for a surety bond is based on the type of work and the creditworthiness of the contractor. A contractor with a strong financial history and strong client relationships can expect to pay lower rates than one with poor credit and no established client relationships.
Each prospective customer must pay their own costs, not just those who are awarded contracts. The likelihood that you will be awarded the contract has an effect on rates as well since this indicates your record of business success.
Generally speaking, contractors with better financial track records will have lower premiums than those whose job histories reflect many defaults or bankruptcy claims against them. On the other hand, 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?
The bond requirement is mandatory for insurance companies and self-insurers under the Workers Compensation Law. All employers must have a workers’ compensation policy or certificate of self-insurance.
If you are a third-party administrator performing work on behalf of an employer that has a policy with us, you do not need to have your own bond. You will be covered by our bond while performing work on behalf of the employer whose name appears on the policy.
We’ll also immediately suspend your authority to pay claims. If you subsequently apply for a bond with an acceptable surety, we’ll reinstate your authority to pay claims when the surety confirms coverage.
If you’re still not bonded by the time of our next annual audit, we’ll terminate your authority to pay claims. You won’t be able to reapply until you can provide evidence that you have a currently effective surety bond in place that meets the requirements.
Is the price of a surety bond negotiable?
While most sureties are able to charge different customers rates based on their creditworthiness, others limit their customers with flat-rate pricing plans. However, some companies will negotiate for certain clients who they feel have a strong enough case and need help obtaining bonding capacity. A good way to find out more about what an underwriter may be willing to do for your company is by asking them if they can provide you with some information on their contract terms.
Most surety companies establish the same type of charges across all industries so that even though there are different package options available, each one has the same insurance cost associated with it. However, some companies are more flexible than others, and they will review the exact nature of each business’s requirements to make sure all needs are addressed accordingly.
The main thing to remember is that the underwriting department has the final say over any price changes or negotiations. If you feel that your case merits it then by all means ask them for better pricing options if they provide them with different package plans; however, if your current company does not offer alternate premiums then you will need to search elsewhere for a better rate.