Question 1

What is the difference between a surety bond and insurance?

Accepted Answer

Insurance protects you, the insured, from financial loss. A surety bond protects a third party — the obligee — from financial loss caused by your failure to perform. If a claim is paid on your insurance, the insurer absorbs the cost. If a claim is paid on your surety bond, you are legally obligated to repay the surety company.

Question 2

What is an indemnity agreement?

Accepted Answer

An indemnity agreement is a legal document you sign when purchasing a bond. It pledges your corporate and, in most cases, personal assets to reimburse the surety company if they have to pay out a valid claim against your bond.

Question 3

What is the 'bond amount' or 'penal sum'?

Accepted Answer

The bond amount (also called the penal sum) is the maximum amount the surety company will pay out if a claim is filed. It is not the price you pay for the bond — you pay a premium, which is usually a small percentage of the full bond amount.

Question 4

How much does a surety bond cost?

Accepted Answer

The cost (the premium) is usually a small percentage of the total bond amount. For low-risk bonds like notary bonds, the premium might be a flat $50. For higher-risk bonds like large contractor bonds, the premium is typically 1% to 3% of the bond amount and depends on personal credit and business financials.

Question 5

Does my credit score affect the bond price?

Accepted Answer

For many commercial bonds, yes. The surety reviews your credit history to estimate the likelihood that you will fulfill your obligations and repay any claims. Better credit generally means lower premiums. That said, many standard license and notary bonds are issued instantly without a hard credit pull.

Question 6

How long is a surety bond valid?

Accepted Answer

Bonds are typically issued for a specific term, usually one to three years, and must be renewed before expiration to keep your license or permit active. Some bonds — like probate bonds — remain active until the court officially releases them.

Question 7

Can my bond be canceled?

Accepted Answer

Yes. Either you or the surety company can cancel the bond, usually by providing written notice to the obligee (often 30 to 60 days in advance). If your bond is canceled and you still need to maintain your license, you must replace it with a new bond immediately.

Question 8

What happens if a claim is filed against my bond?

Accepted Answer

The surety company will investigate the claim. If it's invalid, they defend you. If it's valid, the surety pays the obligee up to the full bond amount. Under the indemnity agreement you signed, you must then reimburse the surety for every dollar paid out, plus legal fees.