What is a surety bond?
A surety bond is a contract that involves three parties:
- You or your business (the principal)
- The surety (like State Farm)
- The obligee (the customer or entity that requires the bond)
Basically, the surety promises the obligee that you’ll follow the terms of the bond.
You might need to get a bond for a business license or contract. Plus, being bonded can help you win over new customers, since it shows they’ll be protected.
Why consider a surety bond?
Surety bonds are typically required for businesses or professionals providing services to ensure compliance with licensing laws and regulations. For example:
- Business owners may need a bond to guarantee payment for state sales taxes or utility bills
- Estate administrators or executors might need a bond to fulfill their legal duties
- Most states require notary publics to have bonds
What can a surety and fidelity bond do for you?
License and permit bonds
Electricians, plumbers, general contractors and similar professionals may be required by the city, county or state to be properly licensed. These bonds are designed to reassure customers that the work will be done compliantly.
ERISA bonds
These fidelity bonds help protect retirement funds against losses from fraud or dishonesty.
Public officials bonds
Public officials, including notaries, sheriffs, judges and others, especially if they’re responsible for handling public funds, are usually required to have this surety bond.
What is a fidelity bond and why you might need one?
Fidelity bonds are insurance policies that protect businesses from losing money or securities due to fraud or dishonesty by employees.
Having a fidelity bond gives businesses reassurance knowing they’re prepared for the unexpected.
What’s the difference between blanket and schedule fidelity bonds?
Fidelity bonds give you the flexibility to cover either specific employees or job positions with schedule bonds, or to protect all employees with blanket bonds.
What are the different types of surety bonds?
Here are the most common ones:
License and permit bond
These bonds may be required for your business to be properly licensed in a city, county or state.
Among the types of license and permit bonds include:
- Electrician's license bond
- Plumber's license bond
- HVAC contractor’s license bond
- General contractor's license bond
Public officials bond
Public officials, especially notaries, treasurers, sheriffs and judges responsible for handling public funds, are usually required to provide a bond, guaranteeing they’ll faithfully and honestly perform their duties while in office.
Probate bonds
Probate bonds If you’re appointed as an administrator, executor, guardian, conservator or trustee, you may be required to get a probate bond before executing your duties.
Common types of probate bonds include:
- Administrator bonds
- Executor bonds
- Guardian bonds
- Conservator bonds
- Trustee bonds
Contract performance bond
Performance bonds are common in construction and real estate development.
Owners or investors typically require developers to make sure that contractors or project managers secure performance bonds as a guarantee that they’ll meet the obligations of the contract.
Other types of surety bonds
Among the more common surety bonds include:
- Tax bonds
- Utility bonds
- Lost security/lost instrument bonds
- Union wage and welfare bonds
Coverage in action
As the owner of a real estate development company, you want to assure your clients that you'll meet your contract obligations. A contract performance bond can help provide confidence.
What are common types of fidelity bonds?
Fidelity bonds are insurance policies that offer businesses protection against loss of money and securities caused by fraudulent or dishonest acts committed by employees.
ERISA bonds
Created as part of the Employment Retirement Income Security Act, these insurance policies help protect retirement plans against losses that result from fraud or dishonesty
Business services bonds
Condo and homeowners association bonds
This bond helps provide protection against dishonesty by employees, directors and officers, or others who have access to association funds
Employee dishonesty bonds
These bonds help insure your business against dishonest acts committed by your covered employees
Nonprofit organization bonds
You can help protect your organization’s funds from dishonest acts by covered employees who have access to the organization’s funds
Should you consider a Business Owners Policy (BOP)?
Business Owners Policy may help protect your small business from various covered claims, including bodily injury, property damage and injuries done to others that may occur resulting from your organization’s operations.
Frequently asked questions about surety and fidelity bonds
If a claim occurs and State Farm makes a payment, the customer must reimburse State Farm. This process is known as indemnity, which grants the Surety the right to recover all losses and expenses related to a claim or its defense.
Common types of fidelity bonds include:
- ERISA bonds
- Business services bonds
- Condo and homeowners associations bonds
- Employee dishonesty bonds
- Nonprofit organization bonds
For a surety bond, a completed application with the owners’ signatures, and depending on the type of surety bond, a financial statement and/or credit report is required. Fidelity bond required a completed application, owners/board member signatures.
Bond amount and term of bond (which are both determined by the obligee).
Yes. Contractors often need multiple bonds for the various towns, cities or counties where they perform work.
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Prices are based on rating plans that may vary by state. Coverage options are selected by the customer, and availability and eligibility may vary.
This is only a general description of coverages of the available types of business insurance and is not a statement of contract. Details of coverage, limits, or services may not be available for all business and vary in some states. All coverages are subject to the terms, provisions, exclusions, and conditions in the policy itself and in any endorsements. Contact a State Farm agent for more information and a customized quote.
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