Surety Bond FAQ

By Crystal Ignatowski on Oct 5, 2015 11:39:08 AM in

Surety Bonds 101, FAQ

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Surety bonds can be confusing which is why we've compiled a list of surety bond frequently asked questions plus their answers. Don't see your question here? Ask it in the comment section!


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Surety Bonds: Basic Questions


Q: What is a surety bond?

A: A surety bond is a three-party agreement between a principal, an obligee, and a surety.

  • Principal: the one who needs the bond
  • Obligee: the one who requires the bond and is protected by the bond
  • Surety: the one who issues the bond

A surety bond binds these three individuals together in a contract. If a principal is unable to fulfill his/her duties, the surety will assume responsibility and compensate the obligee. The responsibility is ultimately the principal’s, though, and once the surety has paid the obligee, they will go after the principal for reimbursement.

You can learn more about how surety bonds work.


Q: How do I know I need a surety bond?

A: An obligee (the entity that requires a bond for you to operate legally) will tell you if you need a surety bond. Surety bond requirements vary depending on what you are doing, your occupation, and your location.



Q: Is a fidelity bond the same as a surety bond?

A: No. Fidelity bonds are used to protect companies against financial losses. These are usually optional to obtain, but certain businesses are more at risk than others and are strongly suggested to purchase Fidelity bonds for their company. Companies that are more at risk are:

  • Brokerages
  • Cash carriers
  • Messenger/courier services
  • Restaurants/bars
  • Boutiques/shops
  • In-home service providers (nursing care, pet sitting, security, electronic-installation)


Q: Why can’t I just buy insurance?

A: Surety bonds and insurance are two very different means of protection. Insurance protects the person who buys the insurance. Surety bonds, though, do not protect the person who buys the bond. Instead, they protect the obligee, the person who requires the bond.



Surety Bonds: Cost Questions


Q: How much does a surety bond cost?

A: The cost of a surety bond depends on many factors. The main factor is the type of bond. A $100,000 surety bond will always cost more than a $1,000 surety bond.

The other factors that determine the cost of a surety bond are the 4 C’s of surety: Capital, Character, Capacity, and Credit.

  • Capital: Do you have the financial strength to meet your obligations?
  • Character: Do you have a positive reputation and good references?
  • Capacity: Do you have the personnel, equipment, and experience to fulfill your obligations?
  • Credit: How strong is your credit score?

An underwriter will evaluate you on these qualities to determine your bond rate.


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Q: So I don’t pay for the full bond amount?

A: No, you only pay a percentage of your total bond amount. Generally, those with strong capital, character, and capacity can get bonded at a 1-3% rate.

You can use our Bond Cost Calculator to get an estimate on what you would pay for your surety bond.

You can also learn more about how much a surety bond costs.



Q: Can I get a surety bond with bad credit?

A: Yes. We have bad credit options for individuals, so you can get bonded no matter what your situation.


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Q: What if I can’t pay for my bond?

A: We have financing options for individuals who need help paying for their bond. Generally, bonds need to be over $1,000 to qualify for financing.



Surety Bonds: Application Questions


Q: What is the process to get a surety bond?

A: Here are the steps to get a surety bond:

1. Submit an application
2. An underwriter will evaluate your risk and determine your bond rate
3. View quotes
4. Sign indemnity agreement
5. Pay for bond

You can learn more about how to get a surety bond here.

Short on time? Check out our Surety Bond Process FAQ.


Q: What is an indemnity agreement?

A: An indemnity agreement is a legal document that fully discloses your obligations in the surety bond relationship. It allows the surety bond company the right to recover any losses paid out on behalf of you.


Q: Why does my spouse have to sign the indemnity agreement?

A: Sureties often require that a spouse personally guarantees your surety bond. This is because most personal assets are shared with your spouse. This simply ensures that the personal assets used for underwriting are available to the surety bond company should a claim be made on your bond.


Q: How long does it take to get a bond?

A: The length of time from application to issuance will vary depending on the type of bond. Many bonds can be approved instantly online upon completion of an online application. These bonds can be issued one to two days after receipt of payment and a signed copy of the indemnity agreement.

To apply for a bond online, click here.



Surety Bonds: Claims Questions


Q: What happens if a claim is filed against my bond?

A: Read this post on Surety Bond Claims.

If a claim is made on your bond, the surety bond company will investigate the claim to determine if it is valid or not. If the claim is not valid, there will be no financial losses incurred since the dispute was deemed illegitimate. If the claim is valid, though, the surety bond company will remind you of your obligations under the indemnity agreement and give you the opportunity to satisfy the claim. If you fail to respond or satisfy the claim, the surety bond company will arrange a settlement with the obligee, then proceed with collecting the settlement from you.


Q: How can I avoid claims on my bond?

A: Run an ethical business and fulfill your obligations and duties that are laid out in your surety bond contract.

Car dealers can learn more about how to avoid bond claims here.

Mortgage professionals can learn more about how to avoid bond claims here.



Now that you are all educated, ready to get your bond? 

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