Business Insurance
Surety Bonds
A surety bond is a three-party agreement in which a surety company backs your obligations to a project owner or licensing authority. Many public projects, contracts, and contractor licenses require one before work begins.
What is a Surety Bond?
A surety bond involves three parties: the principal (your business), the obligee (the project owner or agency requiring the bond), and the surety (the company backing your obligation). If the principal fails to meet its obligations, the surety pays the obligee and then seeks reimbursement from the principal.
Bonds are not traditional insurance. They protect the party requiring the bond rather than your business, and the surety underwrites them based on your financials, experience, and track record. Common types include bid, performance, payment, and license bonds.
Key Benefits
Common Uses for Surety Bonds
Bidding public work
A bid bond is required to submit a proposal
Winning a contract
A performance bond is required before work begins
Paying subs and suppliers
A payment bond backs payments to subs and suppliers
Contractor licensing
Your state or city requires a license bond
What Surety Bonds Typically Back
Typically Covered
- Bid obligations when you submit proposals
- Contract completion (performance bonds)
- Payment to subcontractors and suppliers (payment bonds)
- License and permit obligations to states and cities
- Court and fiduciary obligations, in some cases
Typically Not Covered
- Your own business losses: bonds protect the party requiring them
- Injuries or property damage (general liability)
- Insurance requirements in your contracts
- Repayment: the surety seeks reimbursement from you after paying a claim
- Obligations outside the bond's stated scope
Coverage varies by policy and provider. Review policy terms carefully before purchasing.
How It Works
Getting covered is simple, and it is free for business owners.
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Answer a few questions about your operations, team, and the coverage you are looking for.
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Get Covered
Choose the option that fits, get your certificates, and move forward with your work.
How Much Does Surety Bonds Cost?
Surety bond premiums typically run between 0.5% and 3% of the bond amount for businesses with solid financials, and license bonds are often inexpensive, sometimes between $100 and $500 per year. Pricing depends on your financial statements, credit, experience, and the size of the obligation. Programs for newer businesses exist, often at higher percentages. Comparing surety options may help you find capacity that fits.
What Affects Your Premium
- Bond type and amount
- Business and personal financials
- Credit history
- Industry experience and track record
- Project size relative to your history
- Prior bond claims
Who Typically Needs Surety Bonds?
Frequently Asked Questions
Insurance protects your business from covered losses. A surety bond protects the party requiring the bond: if you fail to meet a bonded obligation, the surety pays the claim and then looks to your business for reimbursement. Bonds are underwritten more like credit than like insurance.
The most common are bid bonds (required to submit bids), performance bonds (backing completion of the work), payment bonds (backing payment to subcontractors and suppliers), and license bonds (required by states or cities to hold a contractor license). Requirements vary by project and jurisdiction.
Bond premiums are typically a small percentage of the bond amount, and the percentage often depends on your financials, credit, experience, and the size of the obligation. Stronger financials generally mean lower percentages. License bonds are often inexpensive, while large performance bonds involve deeper underwriting.
Sometimes. Some surety programs work with newer businesses or owners with limited credit, though pricing may be higher and bond amounts may be smaller. Building a relationship with a surety and completing bonded work successfully often expands capacity over time.
License bonds are often issued quickly, sometimes the same day, since underwriting is light. Bid and performance bonds take longer because the surety reviews financials, experience, and the project itself. If you know bonded work is coming, setting up a surety relationship before you need the bond typically speeds things up.
License and permit bonds typically renew annually as long as you hold the license. Bid, performance, and payment bonds are tied to specific projects and end when the obligation is fulfilled. Renewal pricing may change with your financials and claims history.
Coverage guides by industry: Contractors & Trades
Related Coverage Options
General Liability Insurance
Covers third-party bodily injury, property damage, and advertising claims.
Learn more →Workers' Compensation
Covers employee medical costs and lost wages from work-related injuries.
Learn more →Builder's Risk Insurance
Protects structures and materials while under construction or renovation.
Learn more →Need a Bond for a Bid, Contract, or License?
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