How to Qualify for a Surety Bond

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Are you wondering how to qualify for a surety bond? Read this post! This guide should tell you everything you need to know. If you have any questions, don’t hesitate to contact our knowledgeable agents.

What Are Surety Bonds?

A surety bond is the purchaser’s guarantee to abide by relevant laws, rules, and regulations or pay the price, so to speak. These requirements are spelled out in the terms and conditions of the surety bond agreement. The bond provides funds to compensate parties who suffer a financial loss caused by the unlawful or unethical actions of the bonded individual.

Though surety bonds are often confused with insurance policies, they are fundamentally different. The main difference lies in who benefits in the event of a claim. While an insurance policy pays a monetary benefit to the policyholder, a surety bond pays claims filed by those injured by the bonded individual. It’s important to understand that distinction.

How Do They Work?

The three parties to a surety bond agreement are:

  • The obligee (the party that requires the purchase of a surety bond)
  • The principal (the party purchasing the bond)
  • The surety (the party underwriting and issuing the bond)

The obligee establishes the required amount of the bond, also referred to as the penal amount. This is the total amount of money guaranteed to pay claims against the bond.

The principal pays the surety a premium to obtain the bond, which is good for a predetermined period of time. If within that period of time the principal violates the terms and conditions of the bond, any party who suffers a financial loss as a consequence has the right to file a claim against the bond.

The surety will ensure that any claim is valid before paying it. However, the ultimate legal responsibility for paying claims rests with the principal, who must reimburse the surety for the amount paid out on the claim. This is price the principal pays for having failed to live up to the terms of the surety bond.

How Do I Qualify?

The surety’s main concerns in evaluating a surety bond application include:

  • Whether the applicant is likely to incur claims
  • Whether the applicant has the ability to reimburse the surety for any claims paid

The key factors the surety looks at when qualifying applicants are:

  • The applicant’s personal credit score
  • Personal and business finances
  • Assets
  • Resumes or other evidence of industry experience and professional reputation

These factors all may enter into the surety’s approval of an application. But what typically determines the premium you will pay for the bond, is your credit score. The higher that is, the lower the premium you will pay.

Get Qualified Today

Want to know if you qualify? Simply apply for a bond with Absolute Surety online. We offer a wide range of bond types with quick turnarounds.

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