The Expert Podcast

So you've been told that you need to get a surety bond. Maybe this is for some contract you need to bid on. It might be for some licensing that you're applying for that requires you to be bonded. In some cases, it's because of a court case where you have to file an appeal bond or a judgment bond. Either way, a surety bond can be used for multiple different requirements, but it's almost always something that is an obligation of a licensee or an applicant that's required by a government agency.
How much does a bond cost? Well, a surety bond has a premium; that's the fee that you pay that's based on three factors. It's based first on the amount that's being guaranteed. For example, if you have to buy a fifty thousand dollar surety bond, that's going to be different than a twenty thousand dollar surety bond. Now, keep in mind that what you have to pay isn't fifty thousand dollars. For example, many vehicle title processes require a vehicle title bond, and they say that you have to buy a bond for one and a half times the value of the vehicle. Well, if you have a ten thousand dollar vehicle, one and a half times that is fifteen thousand. A lot of people think you have to pay fifteen thousand for the bond, but you don't. In fact, that bond will probably only cost you a hundred or maybe two hundred dollars. The other factor that goes into the bond is, in some cases, the creditworthiness of the person who's being bonded. So, if it's a bond over a certain amount, usually over about twenty thousand, you may find that your credit comes into play in determining how much the bond is going to cost because that's a risk for the bond issuer. The third factor is what type of bond it is. Is it for a court requirement? Is it for a license? Is it for a contract on a bid? Is it for a vehicle title? Is it for some type of professional obligation? And each one has a little bit of a of a different risk, but they're all in the same ballpark. As a rule of thumb, most bonds cost between one and four percent of the bonded amounts. As an example, if you have a twenty thousand dollar bond and the bond rate for that particular instrument is two percent, that bond will cost you four hundred dollars. If you have a fifty thousand dollar bond and that bond rate is one percent, that's going to cost you five hundred dollars.
So, the bond premium is usually a one-time premium that covers you for that duration, and it's based on those three factors: the amount of the bond, the creditworthiness, and the type of bond. Now, what's the easiest way to calculate the amount? Just call a bond agency. The bond agency or the bond producer can calculate your bond fee to the penny based on the information that you give them. So, if you want to get a rough idea, you know, take the bond amount that's required, multiply it by maybe two or three percent to be on the safe side, and that'll give you a rough idea. If you want an exact amount, just call the bond agency; they can tell you instantly or within a few minutes how much your bond fee is going to be.
That bond premium is usually a one-time premium for a certain duration or certain obligation. Keep in mind, too, that a bond is not like insurance. So, if you default on the obligation that you have under that bond—maybe to issue a title, maybe to finish the bridge you're building, maybe to perform your license duties properly—if you default on that, if the bond company pays out, it's not like your insurance policy. If you have an insurance policy, let's say, and you crash your car and you injure somebody, your insurance pays that person, and that's the end of the story. With a bond, if the surety bond company pays out on your obligation, now they come after you to get paid back. So, it's not like insurance; you're still obligated, but that bond company is just there with deep pockets to make sure that the victim gets paid.