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What You Need To Know When Buying A Surety Bond

Buying a surety bond can be an intimidating process. Most are unfamiliar with the product, how it works and what to look for when in the market for a bond. This overview will educate you on all of the basics so you know what to look for beyond premium costs.


Overview: Surety Bonds Explained

Claims will cost you

Surety bonds are not insurance for you. They are insurance for your client(s). If there is a claim on your bond, the bonding company backing the bond will look to you for repayment of money paid out. If you're unfamiliar with surety bonds, you can learn how they work as well as how bond claims can hurt you.

You need a claims advocate

Most bonding companies are huge insurance carriers that deal with a tremendous amount of claims. To make sure you don't become a number if a claim arises, you need to work with a bond professional that knows how to be your advocate. In doing so, they will work directly with you as your liaison in the process to thwart fraudulent claims and assist you in resolving legitimate claims.


All bonds are not equal

The bonding company backing your bond is providing an insurance policy to your client(s). Usually the beneficiary of these policies will require that only financially healthy companies can back the bonds to ensure that claim obligations can be met. Rather than doing their own analysis of the bonding company's solvency, most use the financial grades by A.M. Best to gauge what is acceptable. A true bond professional will only sell you a bond that meets or exceeds the required standards. To size up your bonding company, you can search for their A.M. Best rating and review their gross written surety premium to gauge their surety experience. It is the job of the agent to select the right bonding company for your needs, so it is imperative that you choose a professional surety agent.

What to listen for when choosing your agent

If a bond agent neglects to mention that you are responsible to pay claims, you should run, not walk away. Their interests are likely in making your sale and moving on to the next, rather than properly educating their clients. The best way for you to fight claims is to become properly educated so you can avoid them altogether. Agents that do not take the time to discuss claims with you before their sale are not likely to be a good claims advocate for you after they have their money.

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