A PRACTICAL GUIDE TO SURETY BONDING
The Surety Bond: A Primer
Although surety is an ancient concept, its prime mission can be stated simply: performing a service for qualified individuals whose affairs require a guarantor.
In the United States, surety guarantees have been issued by corporations for over a century. These corporate sureties are large financial institutions. They have the necessary capital to make numerous commitments in form of surety bonds.
Because insurance companies issue many surety bonds, some people think that insurance and surety bonds are the same thing. While there are similarities, there are also major differences. Insurance comes with expected losses. Therefore, the insurance company pools the risk with a large number of applicants so the risk is shared. Covered individuals are expected to pay their deductible, but not to repay the actual loss. Surety bonds are not expected to incur losses, which is why sureties like to cover qualified individuals. If the surety does need to step in and pay the obligee or third party for any losses, the covered individual or principal is then excepted to repay the surety for those losses.
A bond guarantees the performance of a contract or other obligation. Bonds are three party instruments by which one party guarantees or promises a second party the successful performance of a third party.
1.The Surety–Is usually a corporation which determines if an applicant (principal) is qualified to be bonded for the performance of some act or service. If so, the surety issues the bond. If the bonded individual does not perform as promised, the surety performs the obligation or pays for any damages.
2.The Principal–Is an individual, partnership or corporation who offers an action or service and is required to post a bond. Once bonded, the surety guarantees that he will perform as promised.
3. The Obligee–Is an individual, partnership, corporation, or a government entity which requires the guarantee that an action or service will be performed. If not properly performed, the surety pays the obligee for any damages or fulfills the obligation.
The example below illustrates how a surety bond works:
Joe, the principal, has promised someone (the obligee) that he will do something. If Joe fails to perform as he has promised, financial loss could result to that person.
Consequently, the obligee says to Joe, “If you can be bonded, I’ll accept your performance promise.” Joe goes to surety and ask to be bonded.
After the surety is satisfied that Joe is qualified and will live up to his promise, it issues the bond and charges Joe a “premium” for putting its name behind Joe’s promise.
Joe is still responsible to perform as promised. The surety is responsible only in the event that Joe does not fulfill his promises.
What is a Surety Bond?
|Type of Bond||Description|
|Local License and Permit Bonds||Bonds that are required by local municipalities (counties, cities, towns, etc). They are typically smaller bond amounts and are required when individuals file their license information.|
|State License and Permit Bonds||Bonds that are required by the state. They are typically required when individuals file their license information.|
|Contract (Fast-Track) Bonds||Bonds that are required when an individual obtains a contract with a public obligee. These requests are typically involving work with states, counties, cities, etc. There are three main types of bonds that can be required:
|Dishonesty Bonds||This coverage can be obtained through Dishonesty A or Dishonesty B and protects the employer against dishonest acts committed by employees.|
|Janitorial Services Bonds||This coverage is typically for cleaning services and protects employers from dishonest acts of their employees. This coverage covers losses to customers’ property only and does not cover the employer’s property.|
|Notary Bonds||Notary bonds are required by a notary public to protect the consumer (notary purchaser and document recipient) from fraudulent document-signing. The bond guarantees faithful discharge of the duties of office. The obligee is the state for the protection of the public.|
|Notary E&O Policies||This type of insurance policy covers errors & omissions made by a Notary Public. We offer two types of policies, Group and Individual:
With both the individual policy and group policy there is no deductible and are written on an occurrence basis, which means that the error or omissions must have occurred during the policy period or life of policy. In the majority of states, defense costs are included within and not in addition to, the limit of coverage.
Following are the bond requirements for most common bonds other than notary bonds. If you need a notary bond, please click here. If you do not see what you are looking for, just give us a call!
Once you select the bond that meets your needs, click on the button in the left column for that bond, and it will take you to an application form. Please read the instructions carefully, and complete each section. Should you have any problems or questions, again, just give us a call. We will be happy to walk you through your application.
When we have received your bond application, we will get back with you quickly to complete your transaction. If you do not hear from us in 2 business days, there may have been a problem with the transmission. Please call and check with us.
Contact Us: (405) 235-5319 firstname.lastname@example.org 121 NW 6th Street, Oklahoma City, OK
Bond Requirement Table
|Bond Requirement||Description||Who needs this bond||Typical Coverage Amounts|
|OK Armed Security Guard/Private Investigator||Bond that is required by the State of Oklahoma for individuals to act as an armed security guard or private investigator||Individuals acting as an armed security guard or private investigator||$10,000|
|OK Un-Armed Security Guard/Private Investigator||Bond that is required by the State of Oklahoma for individuals to act as an un-armed security guard or private investigator||Individuals acting as an un-armed security guard or private investigator||$5,000|
|OK Bail Enforcer License||Bond that is required by the state of Oklahoma for individuals to act as a bail enforcer||Individuals acting as a bail enforcer||$10,000|
|Solicitor||Bond that is required by various states, counties, or cities in order to sell items in their area||Individuals acting as a solicitor or transient vendor selling items||Varies|
|Salesman/Salesperson||Bond that is required by various states, counties, or cities in order to sell items in their area||Individuals acting as a salesman or similar capacity.||Varies|
|Sidewalk Contractor||Bond that is required by some municipalities to do work or repair sidewalks||Individuals working on public sidewalks||Varies|
|Paver||Bond that is required by some municipalities to do paver work||Individuals working on paving jobs||Varies|
|Pawn Shop/Pawn Broker||Bond that is required by some municipalities to operate a pawn shop or act as a pawn broker||Individuals acting as a pawn shop or pawn broker||Varies – typically $5,000 and separate bonds needed for each location in Oklahoma|
|Process Server||Bond that is required by municipalities for individuals who specialize in delivering legal documents to their intended recipients.||Individuals acting as a process server||Typically $5,000|
|Motor Vehicle Dealer||Bond that is required by most states in order to sell vehicles. The requirements can be different depending on if the individual is selling new or used vehicles.||Individuals selling new or used vehicles||Varies|
|Auctioneer||Bond that is required by municipalities in order to conduct auctions||Individuals acting as an auctioneer||Varies|
|Fence Contractor||Bond that is required by municipalities to build or repair fences||Individuals working on fence repair or construction||Varies|
|Plumbing Contractor||Required by the state with license and permit documentation. Conditioned upon the individual faithfully and properly conducting business in compliance with all the applicable statues and rules, and with all applicable ordinances and the municipality in which plumbing work is performed.||Individuals acting as a plumbing contractor||$5,000 per license (in OK)|
|Electrical Contractor||Required by the state with license and permit documentation. Conditioned upon the individual faithfully and properly conducting business in compliance with all the applicable statues and rules, and with all applicable ordinances and the municipality in which electrical work is performed.||Individuals acting as an electrical contractor||$5,000 per license (in OK)|
|Mechanical Contractor||Required by the state with license and permit documentation. Conditioned upon the individual faithfully and properly conducting business in compliance with all the applicable statues and rules, and with all applicable ordinances and the municipality in which mechanical work is performed.||Individuals acting as a mechanical contractor||$5,000 per license (in OK)|
|Janitorial Services||This coverage is typically for cleaning services and protects employers from dishonest acts of their employees. This coverage covers losses to customers’ property only and does not cover the employer’s property.||Companies who specialize in cleaning services||Varies ($5,000 – $100,000)|
|Dishonesty Bond||This coverage can be obtained through Dishonesty A or Dishonesty B and protects the employer against dishonest acts committed by employees.||Anyone who would like extra protection against potential dishonest acts of their employees||Varies ($5,000 – $100,000)|
|Pension Fund||ERISA1 requires that plan officials who manage, oversee, recommend or handle funds or other property of an employee benefit plan be covered by a fidelity bond for at least 10% of the plan assets, according to the U.S. Department of Labor. The purpose of the bond is to ensure that a pension or health fund can recover some of its losses if a plan official commits fraudulent or dishonest acts. 1ERISA is the Employee Retirement Income Security Act, a Federal Law enacted in 1974. ERISA established minimum standards for plan administrators and investment advisers to protect employee pension and health plans in the private sector.||Individuals with a Pension Plan in place for retirement funds.||Varies – typically 10% of plan assets per trustee.|
|Contract – Fast Track||Bonds classified in the form of bid, performance and payment bonds. These bonds provide protection to project owners, contractors, laborers, subcontractors, and suppliers. In general, contract bonds are used to guarantee a contractor will perform according to the terms and provisions of the contract. If the contractor fails to perform according to contract, the surety company is responsible to the obligee for completion of the contract or payment, up to the limit of the contract. The surety company then has recourse against the contractor for reimbursement. Contract Bonds are non-cancellable and liability continues until the contract terms are completed, the obligation of the principal is discharged by the obligee, or the applicable statute of limitations has run out.||Individuals working on construction jobs that are contracted with public obligees and requiring bonding coverage||Varies|