All across the country, the laws are basic and pretty much alike. Each state may have some differences based on the focus of their state, but all have bail bonds and surety bonds. However, there are different types of surety bonds, including bail bonds, and not everyone can acquire a surety bond.
Legally and officially, there isn’t any breakdown of the different types of surety bonds. However, for the sake of this article and simplification, we are going to sort them into four categories:
A surety bond is a kind of insurance policy. A fee is paid to the surety by the principal of the surety bond, also referred to as a premium. A surety bond offers an additional incentive for the obligee to have trust in the principal. So, if the principal defaults on any type of surety bond, the obligee is still paid and the principal is held responsible for reimbursement.
Knowing how surety bonds work will make this explanation easier to understand. The different types of surety bonds all function the same way. A surety bond creates a contract between the three involved parties:
The surety agency guarantees the obligee that the person who paid for the surety bond (the principal) will follow through with the terms that are established and spelled out within the surety bond.
A company wants to have a new office building constructed, and they hire a local general contractor. The city requires the general contractor to obtain a surety bond that will secure their performance to complete the proposed construction. The general contractor must, in turn, get a surety bond from a surety company.
Now, three parties are involved in this construction plan and have the following responsibilities:
The company wanting to have the building constructed is the obligee. The general contractor is the principal. The surety company is the surety. The basics of this are the surety bond company will protect the company that wants the building constructed from the general contractor not following through with the job as agreed.
Generally, a surety company will issue all types of surety bonds. However, you can apply for all types of surety bonds through a broker or surety bonding agency. Any company that is issuing different types of surety bonds is licensed by the state they operate within and is required to follow the regulations of that state accordingly.
December 31st of every year is the renewal deadline for most types of surety bonds. They must be renewed via a continuation certificate, or a new surety bond must be issued. Most surety providers will begin notifying anyone with a surety bond that their expiration is coming up, typically 90 days ahead of the expiration.
Unless the obligee releases you from your surety bond, you must renew it before the expiration date to maintain it in good standing. Failing to renew a surety bond can lead to professional license suspension or even revocation and the licensing process will need to start from the beginning.
All types of surety bonds must be paid for in full at the time they are issued. There isn’t a payment plan for surety bonds. The price you’re quoted will be the price you’ll need to pay. Surety bonds are quoted in terms, like a 1-year term, 2-year term, 3-year term, etc., and you’ll need to renew the bond each term.
If you need to make monthly payments, it will be up to the surety company you seek to work with if they offer a finance option. Like any loan or an insurance policy, you’ll need to meet certain criteria. As the applicant, surety bonds with bad credit are usually denied financing. You as an applicant also have to qualify. The surety company will need to feel comfortable putting you on a payment plan before the payment plan can begin.
After you have a surety bond and the goal is complete, are surety bonds refundable? This is one of many myths about all types of surety bonds. No, they are not refundable. After a surety bond has been issued, the premium (the amount paid when the surety bond was issued), is non-refundable no matter the time frame it has been in effect. Surety companies and the agencies that issue all types of surety bonds do not prorate premium refunds. If you’d like to learn more about surety bonds, reach out to our team by calling 316-755-5142.
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