Business Insurance
Surety bonds, and why they are not insurance.
A bond is a guarantee to someone else that you will do what you agreed to do. That makes it a different instrument from an insurance policy, with different consequences.
No obligation. Starting a review does not change or bind any coverage.
What's going on
Someone has told you that you need a bond — a city or state licensing board, a general contractor, a project owner, or a court. You may have been given a form and a dollar amount and very little explanation of what either means.
Why it matters
A bond is easy to mistake for an insurance policy, and the difference matters. An insurance policy protects you. A surety bond protects the party requiring it, and if the surety pays a claim, you are generally expected to pay the surety back. Knowing that up front changes how you think about the obligation you are signing.
Things worth considering
Points we would talk through with you. Which of them apply depends on your situation, and what you do about them is your decision.
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A bond is a three-party agreement
The principal is you. The obligee is whoever requires the bond. The surety backs your obligation. That is a different structure from an insurance policy, which has two parties.
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You indemnify the surety
If the surety pays out on a bond, it typically has the right to recover that amount from you. A bond is a guarantee of your performance, not protection against your own failure to perform.
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The type of bond depends on who is asking
License and permit bonds are required to operate. Bid, performance and payment bonds attach to construction contracts. Court and fiduciary bonds arise from legal proceedings. They are underwritten differently.
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What underwriting looks at
Sureties generally look at credit, business financials, and relevant experience. For contract bonds, work-in-progress and completed project history usually matter as well.
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The bond amount is not the premium
The penal sum is the maximum the surety could be called on to pay. The premium is a fraction of that, and the rate depends on the bond type and the underwriting.
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Lead time
License bonds are often quick. Contract bonds with financial underwriting take longer, so it helps to start before the bid deadline rather than on it.
Information on this website is general in nature and is not a complete description of any insurance policy or every coverage option that may be available. Coverage availability, terms, conditions, limits and exclusions vary by insurer, policy and individual circumstances. The issued insurance policy and applicable endorsements control coverage. Beacon Point Insurance Group may provide information regarding available insurance options and discuss coverage considerations based on information you provide, but customers are responsible for selecting the carrier, coverages, limits and deductibles they wish to purchase. No insurance coverage is bound, changed, or canceled through this website unless confirmed by Beacon Point Insurance Group or the applicable insurer.
How this tends to come up
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A contractor bidding public work
A project requires a bid bond at submission and performance and payment bonds if the bid is accepted. Establishing the surety relationship ahead of the deadline is what makes the bid possible at all.
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A license renewal
A municipality requires a license bond to issue or renew a permit. The amount is set by the municipality, not chosen by the business.
We Learn. We Compare. We Explain. You Decide.
- 01
We Learn
We ask questions about your situation and the insurance you currently carry.
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We Compare
Based on the information you provide, we can obtain and compare available options from the insurance companies we represent.
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We Explain
We help you understand important differences in coverage, limits, deductibles, policy terms, and price.
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You Decide
You select the company, coverages, limits, deductibles, and options you want to purchase.
What working with us is like
The part people tend to mention is that someone explained it and then let them decide.
More business coverage
Let's find the options that work for you.
No obligation. Starting a review does not change or bind any coverage.