Professional surety bonds are a financial guarantee that an individual or business will abide by the laws and regulations of their industry. The cost of a bond varies among different industries and types of work, but in general, you can expect to pay between $200 and $2,000 per year for a professional surety bond. With so many different types of surety bonds available to professionals working in various fields, it’s easy to become confused about which one is right for you. This guide explains what a professional surety bond is, who needs one, how they cost, and the advantages they provide. Let’s get started!
What is a Professional Surety Bond?
A professional surety bond is a type of financial guarantee that an individual or business will abide by the laws and regulations of their industry. The cost of a bond varies among different industries and types of work, but in general, you can expect to pay between $200 and $2,000 per year for a professional surety bond. Bond requirements vary depending on the type of work you do. If you’re a contractor, for example, you may need a performance bond that guarantees you’ll finish a project on time and according to the terms of a contract. If you’re a realtor, you may need a fidelity bond that guarantees you’ll protect clients’ escrow funds. To clarify, a surety bond is different from a liability insurance policy. Surety bonds are a financial guarantee that an individual or business will abide by the laws and regulations of their industry. Insurance policies, on the other hand, provide payment in the event of a claim. You’ll need to select both a surety bond and an insurance policy if you want to cover all your bases — but this isn’t always necessary.
Why Companies Use Surety Bonds
Contractors, realtors, and other professionals are required to post a surety bond before they can start working on a project. This guarantees that they’ll abide by the law and regulations of their industry, and it protects the public from fraud and negligence. Contractors, for example, use surety bonds to guarantee they’ll complete projects on time, according to the terms of a contract, and without causing damage to the property of third parties. These bonds also protect clients from paying for shoddy work and unfinished projects. Realtors use surety bonds to guarantee they won’t steal client escrow funds or otherwise violate state regulations.
Types of Professional Surety Bonds
There are many types of professional surety bonds, each used for a specific purpose. Although contractors, realtors, and other professionals may be required to purchase several different types of bonds, there is usually an overlap between them. Most people aren’t required to purchase all of these bonds, but it’s helpful to know what they are in case you need to purchase one in the future.
– Contract Bonds – Contract bonds are used by contractors to guarantee they’ll finish a project on time and according to the terms of a contract. Contract bonds are required by clients before they’ll pay a contractor for work completed. They provide a failsafe for people who are hiring contractors but want to make sure a contractor can finish the job without suing for more money halfway through.
– Performance Bonds – Performance bonds guarantee a contractor will finish a project on time and that their work will meet certain standards of quality. These bonds are issued by third-party insurers, not by clients, and they provide clients with an insurance policy in the event the contractor doesn’t finish the job.
– Bid Bonds – Bid bonds guarantee a contractor will submit an accurate bid for a project. If you win a project and another contractor files a dispute claiming that you submitted a false bid, the bond will cover the expenses associated with the dispute.
– Subcontractor Bonds – Subcontractor bonds guarantee a contractor will pay their subcontractors on time. Subcontractors may require a contractor to have a subcontractor bond before they’ll work on a project.
– Construction and Demolition (C&D) Bonds – C&D bonds guarantee a contractor won’t leave behind hazardous materials during a demolition project. This bond is usually issued by a state agency.
– Bid and Performance Bonds – These bonds are a combination of bid bonds and performance bonds. They are often issued to contractors who work in a variety of industries.
– Payment Bonds – A payment bond guarantees a contractor will pay sub-contractors and suppliers. This type of bond is usually issued for large projects that require a significant amount of money to get started.
– Payment and Performance Bonds – These bonds are a combination of payment and performance bonds. They are issued to contractors who work in multiple industries and may have difficulty finding a single bond that covers all of their projects.
– Service Bonds – Service bonds guarantee a contractor will complete service, such as installing telecom equipment.
– License Bonds – License bonds guarantee contractors won’t violate the terms of their contractor licenses by working without a license or engaging in non-licensed contracting.
– Fidelity Bonds – Fidelity bonds guarantee a contractor won’t steal client funds or improperly use escrow funds.
– Insurance Bonds – Insurance bonds guarantee contractors will abide by the terms of their insurance policies, such as building and business insurance policies.
– Performance and Payment Bonds – Performance and payment bonds are a combination of performance bonds and payment bonds. They are often issued to contractors who work in a variety of industries.
– Substitution Bonds – Substitution bonds guarantee contractors will hire licensed subcontractors and replace them with licensed subcontractors if the need arises.
– Insurance and License Bonds – These bonds are a combination of insurance and license bonds. They are often issued to contractors who work in a variety of industries.
– Insurance and Payment Bonds – Insurance and payment bonds are a combination of insurance and payment bonds. They are often issued to contractors who work in a variety of industries.