Calculating The Cost Of A Surety Bond: What You Need To Know

  • 3 min read

So, you have been told that you need to obtain a surety bond. This may be for a contract you need to bid on or for a license you are applying for that requires you to be bonded. Sometimes, it may be because of a court case where you have to file an appeal or judgment bond. Regardless, a surety bond is typically an obligation for a licensee or an applicant required by a government agency, and it can be used for various requirements.

But how much does a bond cost? A surety bond has a premium that is the fee you pay, based on three factors. Firstly, it depends on the amount that is being guaranteed. For instance, if you have to buy a $50,000 surety bond, that will be different from a $20,000 surety bond. However, remember that you don’t have to pay the full amount guaranteed. For example, many vehicle title processes require a vehicle title bond that is one and a half times the value of the vehicle. If you have a $10,000 vehicle, then one and a half times is $15,000. However, you do not have to pay $15,000 for the bond. In fact, that bond will likely only cost you around $100 or $200.

The second factor that goes into the bond cost is the creditworthiness of the person being bonded. For bonds over a certain amount, usually over $20,000, your creditworthiness may affect how much the bond will cost because it is a risk for the bond issuer. 

The third factor is the type of bond. Is it for a court requirement, license, contract bid, vehicle title, or some professional obligation? Each type has a slightly different risk but is in the same ballpark.

As a rule of thumb, most bonds cost between one and four percent of the bonded amount. For instance, if you have a $20,000 bond, and the bond rate for that particular instrument is 2%, that bond will cost you $400. If you have a $50,000 bond, and the bond rate is 1%, it will cost you $500. The bond premium is usually a one-time fee that covers you for a specific duration and is based on those three factors.

What is the easiest way to calculate the amount? Simply call a bond agency, and they can calculate your bond fee based on the information you provide. To get a rough idea, take the bond amount required, multiply it by two or three percent to be safe, and that will give you a rough estimate. However, if you want an exact amount, just call the bond agency, and they can tell you instantly or within a few minutes.

It’s important to note that a bond is not like insurance. If you default on your obligation under that bond, whether it is to issue a title, finish a bridge, or perform your license duties correctly, and the bond company pays out, they will come after you to get paid back. It’s not like insurance where your insurance pays, and that’s the end of the story. With a bond, you are still obligated, but the bond company is there with deep pockets to ensure the victim gets paid.

Leave a Reply

Your email address will not be published. Required fields are marked *