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Who Is Protected By A Contractor License Bond?

By Duke Revard on Jun 13, 2017 8:34:00 AM in

Contractor License Bonds

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who is protected by a contractor license bond



If you are a construction professional, chances are you need a Contractor License Bond. A contractor license bond is a type of surety bond.

Unlike insurance which protects the insured, a surety bond does not protect the bonded individual. Read on to find out more.

Who Needs a Contractor License Bond?


Almost every contractor will need to secure a Contractor License Bond before they can receive their license. Your bond requirement will vary depending on the state you wish to get licensed in.

Here are popular states that require a Contractor License Bond.

Click on state to go to blog post for how to get a Contractor License & Bond in that state.

Bond amounts for each state vary.

Did you know there are over 200 Contractor License Bonds? We only list the most popular ones here, but you can find the bond you’re looking for by selecting your state from our state bond map.

 

Who is Protected by a Contractor License Bond?


A Contractor License Bond is not like normal insurance, in which the person who purchases the insurance is the person who is insured. In a Contractor License Bond, you purchase the bond, but it is your clients and the state you are licensed in that is insured.

In a sense, a Contractor License Bond is insurance for others, paid by you.

You will only need to "pay the insurance" if someone files a claim against your bond and that claim is determined to be valid. The surety company will pay the claim FIRST, then they will come to you for reimbursement. You are responsible for every penny the surety company pays out on a claim.

You can learn about how the bond claim process works.

For information on how to avoid rookie contractor mistakes, view our "Rookie Contractor Mistakes" series.

 

How do Contractor License Bonds Work?



When you purchase a surety bond as a contractor, you enter into a three-party relationship. In this relationship, the person or government agency that requests the bond is called the Obligee. The bond protects the Obligee in case you, the contractor, do not conduct the project as planned.

In the middle of this relationship is the surety bond agency, who issues the bond to the contractor.
 
When a surety company issues a bond, they are saying "this person is financially stable to repay us if a bond claim occurs."
 
If a bond claim does occur, the Obligee (or anyone) can make a claim against your surety bond. This allows individuals to find recourse in situations that they might otherwise have to call a loss.
 

Contractor License Bond Example:

 
For example, if you perform shoddy work or skip town before a job is through, someone can make a claim on your Contractor License Bond.
 
The claim will be investigated. If valid, the surety company who issued your bond will financially assist the claimant. This means the claimaint doesn't need to settle for shoddy work or a half-finished job. They are able to be financially restored.
 
Because of the nature of surety bonds, the surety company will come to you for reimbursement of the money they paid the claimant.
 
 

Is Getting a Contractor License Bond Worth It?



Getting bonded can be a valuable asset to your business. In most cases, it is a requirement to get a contractor license. But beyond that, a bond tells your clients that you can be trusted. It tells them they have a plan of action if things go awry.
 
Getting bonded is a way to position yourself as a responsible, ethical company that will follow through on its commitments. 


If you are ready to get bonded, try Surety Solutions. We have relationships with over 30 of the top insurance carriers in the nation which means we can not only get you bonded, but at the best price. 
 
 
Our Contractor License Bonds start at just $100. Certain states even have instant-issue, no credit check applications.
 
 
Get started below.

Get FREE Contractor Bond Quotes Now!



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