Since there are thousands of different bond types and varied financial conditions of the principals that need bonds, there is a wide range of premium rates. So it’s understandable that the cost of your specific bond need depends on several factors. In general, surety bond premiums run 2-4% of the bond amount. This means in the case of a $10,000 surety bond your premium could be $200-400. Of course, that could be more or less depending on factors like bond type, bond amount, state, financial condition and more.
Surety bonds are a financial guarantee of performance. It’s a three-party contract between the obligee (who’s requiring the bond), the principal (who’s required to post the bond) and the surety carrier. In exchange for taking on the risk of guaranteeing the principal’s performance to the obligee the Surety Carrier charges a premium.
Surety carriers are required by state insurance departments to file the surety bond premium rates they charge and any discounts they offer. These rates vary based on the surety’s risk for a particular bond type in a particular location. The risk to a surety carrier is how likely there is to be a bond claim that the principal cannot indemnify the surety. In general, the riskier the bond type and financial situation of the principal the higher the premium.
Length of Term
The majority of surety bonds are quoted on annual terms. So in the above example that would be $200-400 per year. There are bonds that need bond terms of two or more years. The surety carrier may have rates for some bond types with longer terms so that the quoted rate covers the full term. For other bond types, the surety may simply charge an annual premium each year for as many years as the bond is needed.
Renewable vs Single Term
Costs can differ based on whether a bond is renewable or single term. For example, a license bond must stay in place as long as the license is active; the bond is renewed
each year and principal will pay the annual premium rate. Other bonds may just cover a single event or project. These are typically single term bonds and expire once
the event is finished. This would include bonds like those for sweepstakes or construction projects that only take a year or two to complete.
Fees Charged by the Broker
The vast majority of surety carries work through surety bond brokers instead of directly with principals. The broker may charge additional fees for the bond. Some brokers mark up the surety carrier premiums even though they are receiving commissions from the carrier on the premium charges. It’s always a good idea to verify with your broker that the bond premium line item on your invoice is in fact the direct premium charge from the surety carrier.
A broker may also charge broker fees. These are common and helps cover the direct costs a broker incurs from underwriting the bond. It is not legally require to have this fee broken out separately on an invoice; however, it is best practice to do so.
Shipping Fees, Sales Tax
A broker may charge additional fees to have a bond overnighted or somehow expedited. Surety bonds do not require sales tax unless your bond is for the state of Kentucky, for which there is a surcharge.
At Alpha Surety, we believe your surety bond invoice clearly include every cost and fee broken out separately, so you know exactly what you are paying for. We also never markup premiums. We are more than happy to help if you ever have any questions about an invoice or quote you received, even if it’s not from us.