Click Here for a Business Bonds QuoteThere are hundreds of different types of bonds.  For businesses the bonds will generally fit in one of the following bond groups.

The first group is called business services bonds.  Eligible businesses include appliance repair, interior decorators, electricians, plumbers, lawn care, locksmiths, cable installers, and others that perform their work in or around their clients’ home or business.  Typically these bonds are characterized by low coverage amounts, low premiums and ease of acquisition.  For instance, you have a janitorial service with 5 employees.  You may purchase a $5,000 business service bond that has a $73 annual premium.   The bond protects your clients from dishonest acts committed by your employees.  If your employee steals cash from your client’s office desk, the bonding company may pay for the theft.  The key word is “may”.  Business service bonds are “arrest and conviction” bonds, which means your employee must be arrested and convicted of the crime.  If your employee is arrested, but plea bargains to a lesser charge, there is no payment from the bonding company.  As a result, the bond has limited risk value creating a low premium.  There is a good reason for purchasing a business services bond along with general liability insurance.  It’s for your marketing.  You could advertise that you are bonded and insured.

Do not believe a bond covers the same things as a general liability policy.  Bonds should never be used as a replacement of general liability insurance.

 

The next type of bonds is license and permit bonds.  Inside this group there are many different bond forms.  The license and permit bonds are requirements of the state or cities before you can do certain types of work.  An example would be a municipality requiring a contractor to provide a license bond before doing any work within the city limits of the municipality or the highway department requiring a motor vehicle dealer bond prior to a car dealership selling any vehicles.  Generally these bonds are very easy to issue and have a very reasonable premium.  Since bonding companies really like most license and permit bonds, some of the bonds may be written on a three year term.  If the extended term is offered, the premium could have a significant discount.

Finally there are the contract bonds.  The most common of these are the bid, performance and payment bonds.  These three contract bonds are closely associated with each other.  A bid bond guarantees the contractor will enter into a contract and will provide a performance and payment bond.  The performance bond guarantees the contractor will complete the contract within the contract’s terms and conditions.  Usually the contract will include a guarantee against faulty workmanship and materials for a specific period of time.  The payment bond guarantees that the contractor will pay for all of the applicable expenses of the bonded job such as labor and materials.  These bonds are much more difficult to acquire.  The underwriting process is very much like requesting a loan from a bank.  Financials, resumes, tax returns, letters from banks, etc. will be required.  A minimum of three years of favorable financials and experience in similar jobs are required to get the best premium rate.  The process is time consuming, but if you can get a bond line established, you have a tremendous advantage.  Usually the low-ballers do not have the financial strength to qualify.  If you have a bond line, you have just cut out 90% of your competitors on jobs that require a performance and payment bond.  More importantly, it’s the right group that is cut out.

There are more types of bonds and we will be happy to assist you with any insurance related bond.  We are actually one of the few agencies in the area that has experience with bonds.  As a result, many of our competitors refer their clients to us for any bond.  If you have any questions, please contact us at your convenience.