A surety bond is an agreement between three parties: Principal, Surety and Obligee. The surety provides a financial guarantee to the obligee that the principal, or owner of the business, will fulfill their obligations. The surety is simply a risk transfer. Surety bonds are used to comply with state laws and regulations for specific business licenses for many different industries. If you are required to obtain a surety bond, contact InsurancePM and we will match the business description of your needs.
How Do Surety Bonds Work?
Surety Bonds guarantee specific tasks are fulfilled. This is achieved by bringing three parties together in a mutual, legally binding contract.
Common types of License and Permit Surety Bonds.
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Airline Reporting Bond
Airline reporting commission (ARC) bonds guarantee payments accepted by travel agents are sent to the proper airline. If an individual submits a payment to a travel agent and he/she fails to forward the payment to the proper airline, an ARC bond claim may be filed. ARC bonds are a federal requirement, meaning that an ARC bond must cover every state.
Appraisal Management Company Bond
Appraisal management company (AMC) bonds are required of AMCs to ensure the company is operating in accordance with federal and state laws relative to the appraisal industry. The bond can be used to reimburse individuals who suffer from damage or loss as a consequence of actions by companies who fail to act in accordance to the bond terms. An AMC must have a separate bond in every state they work in that has a surety bond requirement.
Most states require individuals to file an auctioneer bond before being licensed as a professional auctioneer or house operator. Auctioneer bonds protect consumers against the substitution of goods and/or misrepresentation of auction items by the auctioneer. The bond also offers security to consumers in the event of fraud or other ethical breaches.
Auto Dealer Bond
Auto dealer bonds are used to protect consumers from fraud and other wrongful actions committed by auto dealerships and their employees. Before an individual is able to receive a motor vehicle dealer license, an auto dealer bond must be submitted to guarantee the dealership will adhere to industry regulations. With the exception of Ohio and Vermont, every state requires auto dealers to purchase some form of surety bond insurance. The specific protection from this type of license and permit bond varies in each state.
Collection Agency Bond
The purpose of a collection agency bond is to ensure business professionals are performing their jobs according to industry standards and regulations. The collection agency bond is a necessity in providing credibility and dependability to the agency being bonded. Majority of states require collection agencies to obtain the bond before they can receive their business license.
Contractor License Bond
Construction professionals in most states must purchase a contractor license bond before they can be legally licensed to work. With the purchase of a contractor license bond, construction professionals agree to work in accordance to licensing laws and regulations, which protects government agencies from potential financial loss. A separate contract bond may be required for specific construction projects.
Credit Service Organization Bond
A credit service organization (CSO) bond ensures a credit service organization is operating ethically and according to licensing laws and other relevant industry regulations. Many states require credit service organizations to be licensed and bonded before they can start providing their credit repair services to customers.
Suppliers of durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) are instructed to post a DMEPOS surety bond before being approved to bill Medicare. The bonds are required by the Centers for Medicare and Medicaid Services (CMS).
DMEPOS Competitive Bidding Program Bond
The CMS requires bidding entities, typically suppliers, in Round 2021 to obtain a $50,000 bid surety bond before they can submit a bid. The bond obtained must be for the competitive bidding area (CBA) where the entity will submit a bid. Multiple bonds must be obtained if entities submit bids in multiple CBAs.
Energy Broker Bond
An energy broker bond is a necessity for individuals using competitive rates to encourage clients to switch energy providers. Most states require energy brokers to purchase an energy broker bond before they can be legally licensed to do business.
Federal Maritime Commission (FMC-48) Bond
The Federal Maritime Commission expects Ocean Transportation Intermediaries (OTIs) to present proof of financial security in the form of a FMC-48 surety bond, as OTIs provide a variety of international ocean transportation services. Ocean Freight Forwarders (OFFs) and Non-Vessel Operating Common Carriers (NVOCCs) are required to purchase a FMC-48 bond.
Freight Broker Bond (BMC-84)
The Federal Motor Carrier Safety Administration (FMCSA) requires all freight brokers and forwarders to post a $75,000 bond before they can be legally licensed. Freight broker bonds (BMC-84) ensure the brokers and forwarders are held to certain standards and provide protection from fraud or failure to pay motor carriers or shippers in a timely fashion.
Health Club Bond
Health club bonds protect consumers in the event a health club unexpectedly goes out of business. The bond amount is used to refund prepaid membership fees. Health club owners/operators must file for a surety bond before they can be legally licensed, which protects health club members from losing out on their investment of their membership fee.
Hunting and Fishing License Bond
Before businesses can legally sell hunting and fishing licenses in their area, they must post a surety bond. Hunting and fishing license bonds ensure sellers obey laws and regulations applicable to them and protect buyers from any fraudulent activity committed by the licensed sellers.
Insurance Adjuster Bond
An insurance adjuster bond is required by many states for insurance adjusters to be licensed. The bond is required to ensure the state and its residents are protected from any unlawful acts committed by the adjuster. There may be seperate bond requirements for independent and public adjusters, so applicants should verify their specific requirements before beginning the bonding process.
Insurance Broker Bond
An insurance broker bond certifies insurance professionals are performing their sales practices in accordance to the laws of their city and state. Insurance brokers must file proof of an insurance broker surety bond before obtaining a business license in several states.
Medical Marijuana Bond
A medical marijuana bond is needed in several states before a medical or retail marijuana dispensary can open for business. There are currently 29 states and Washington D.C. who are authorized to write medical marijuana prescriptions for certain ailments. NOTE: We are unable to issue medical marijuana license bonds at this time.
Medicaid Provider Bond
Medicaid provider bonds are required by the Centers for Medicare & Medicaid Services (CMS) for all suppliers of durable medical equipment, prosthetics, orthotics and suppliers (DMEPOS). The bond holds companies accountable for appropriately and accurately billing Medicaid.
MMA Promoter Bond
Professional sports promoters are required to file a MMA promoter bond before they can be legally licensed to promote sporting events in their state. The financial guarantee from the bond provides athletes an additional security when they decide to work alongside a sports promoter.
Money Transmitter Bond
Money transmitter bonds are used to guarantee a business is adhering to industry laws and regulations. Transmitter bonds are important for online retailers who accept credit card payments via their website, as well as wire transfer companies for their expenses. Bond costs vary from state to state.
Mortgage License Bond
Several mortgage professionals must purchase a mortgage license bond before they can be legally licensed to work in certain states. These mortgage professional include brokers, lenders, servicers and originators.
A notary bond is a legally binding contract, which guarantees the notary will complete tasks ethically and according to law. If a notary fails to perform his/her duties, a claim can be issued by the state and/or those harmed by the notary’s wrongful actions. The cost of a notary bond is determined on the state level and is based on the bond amount.
Outdoor Advertising Bond
Outdoor advertising bonds ensure advertisers adhere to all applicable laws in regards to construction, placement, adjustment and removal of advertising signs. The bond is most commonly needed by those who construct billboards near highways, roads and other public areas. An outdoor advertising bond is required in several states.
Payday Loan Bond
Payday lenders offer small loans to cover expenses until they are paid. A payday loan is used as a way to protect consumers from criminal behavior carried out by payday loan brokers and other small lending companies.
Patient Trust Bond
Nursing homes and other forms of assisted living facilities need to purchase a patient trust bond to guarantee a patient’s trust funds are managed appropriately. The costs and requirements of patient trust bonds vary on the state level.
Pawn shops are required to be bonded in some states to protect the property of clients being held as collateral. If something happens to a client's property, the surety bond will compensate the claimant up to the full bond amount.
A pharmacy bond refrains businesses from mismanaging drug shipments and/or sales. The bond can be used to pay unpaid fines or other penalties imposed by government agencies. Many states require businesses to obtain a pharmacy bond before they can receive their business license.
Preneed Funeral Bond
Majority of states require funeral homes to file preneed funeral bonds to guarantee they will acknowledge their contract and manage funds appropriately when the time calls for it. Preneed funeral bonds hold funeral homes financially accountable for misappropriated funds, contract breaches and protect the public in the event the funeral home went out of business before a pre-planned funeral took place.
Private School Bond
In the event a private school unexpectedly shuts down, a private school bond guarantees students and parents will receive at least a partial refund of their tuition money they have already paid for. Many private schools across the country have closed permanently because of poor fiscal management and malfeasance, which means these bonds have become increasingly important.
Professional Employment Organization (PEO) Bond
Professional Employment Organization (PEO) bonds are relatively new to the surety industry and provide financial security, which reinforces the operational certainty for PEOs. The PEO bond functions as an outsourced HR department, so there is a great amount of financial responsibility that tags along with the bond. As government agencies have begun regulating PEOs more rigorously, a variety of states have created PEO bonding requirements.
Right of Way Bond
All contractors who wish to perform work in the public right of way must post a right of way bond. A ROW bond protects consumers and government entities from any negligent practices or damages caused by faulty work. Most states and many municipalities will have their own specific ROW bond requirements. Obtaining a ROW bond could be a requirement for obtaining a right of way permit.
Surplus Lines Broker Bond
A surplus lines broker bond guarantees surplus line broker agents act according to laws and regulations. The bond works for the consumer and ensures agents are accurately reporting all amounts collected. In most states, the Insurance Guaranty Association does not protect surplus lines policies, which indicates this bond has become especially important.
Most telemarketers and telephone solicitors have to purchase a telemarketing bond before applying for or renewing a business license. The telemarketing bond protects consumers and the government against irrepressible telemarketing companies that choose to ignore laws, as well as against companies that accidentally break a law due to oversight.
Title Agency Bond
Title agency bonds ensure title agents adhere to industry regulations in the state they work in. A title agency who purchases a title agency bond pledges to issue titles, prepare documents and perform other responsibilities in accordance to laws.
Travel Agency Bond
Since travel agents handle large amounts of money needing to be forwarded to the actual companies that provide services to travelers, government agencies in several states require travel agents to purchase a travel agency bond before they can receive their license. Travel agency bond amounts vary in each state.
Used Car Dealer Bond
Before receiving a motor vehicle dealer license, applicants typically must provide proof of a purchased used car dealer bond. The used car dealer bond guarantees a dealership will comply with industry regulations.
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