Frequently Asked Questions About Surety Bonds (FAQ)


What is a Surety Bond?

Within the insurance industry, a surety bond is a written commitment between three individual parties which guarantees a contract’s execution as it has been agreed upon. Contractual aspects which are addressed by surety bonds include price, performance and payment agreements. The three parties required for the issuing of a surety bond are:

  • The Obligee: Entity that Benefits from and Requires the Bond
  • The Principal: Individual, Client or Business Purchasing the Bond (You)
  • The Surety: Insurance Company that Issues the Bond (Pacific Surety Insurance Agency, Inc.)

Within specific industries and states, governing legislative bodies may issue requirements for particular bonds in order to legally conduct business. As your broker, the surety, Pacific Surety Insurance Agency, Inc. strives to provide our clients, the principal, the lowest available premiums while upholding our unmatched customer service.

Why are Surety Bonds needed?

Within specific industries and states, governing legislative bodies may issue requirements for particular bonds in order to legally conduct business. These surety bonds can entail various licenses and permits necessary for the issuing of a particular business license by state. In general, surety bonds are established to protect against fraudulent behavior and failed satisfaction of contractual obligations.

Are Surety Bonds a type of insurance?

No. It is a common misconception that a surety bond is a form of insurance. In fact, surety bonds work like a line of credit for the principal, not an insurance policy. Insurance policies protect the principal by transferring risk and responsibility to the insurance firm. The insurer is responsible to pay for losses or damages incurred by the insured and is not reimbursed. Surety bonds protect the obligee, not the principal, from risk. Any monies paid out by the surety to resolve claims by the obligee must be paid back by the principal to the surety.

What is a Surety Bond Agency?

Surety bond agencies, sometimes referred to as surety bond brokers, are licensed insurance agents that are appointed by surety companies to represent them. While there are thousands of bond agents across the U.S., many of them primarily offer insurance and write surety bonds on the side – These are sometimes referred to as bond insurance agencies. At Pacific Surety Insurance Agency, Inc., we specialize in surety bonds and only work with the top AM Best-rated and T-listed surety companies.

What is a Surety Company?

Surety companies are insurance organizations that issue and financially back surety bonds. A majority of these companies also provide insurance products, which is why they are sometimes referred to as surety bond insurance companies or bond insurance companies. Surety companies use surety bond agencies to work directly with people who need bonding.

What are Commercial Surety Bonds?

Commercial bonds, or commercial surety bonds, comprise a broad range of bond types including License and Permit Bonds, Public Official Bonds and Court/Probate Bonds. This type of bond is typically needed by professionals in certain industries before they can obtain a business license, and are required by government agencies at the state and local levels.

What is a Security Bond?

Security bond is an incorrect term used in lieu of surety bond. It is typically used by individuals who are unsure what type of bond they need.


How do I get a quote for my bond?

Our online application is the simplest way to get a quote for your surety bond. It takes approximately 5 minutes to complete, and most applicants will typically receive an approval within 1 hour. Once completed, one of our knowledgeable underwriting staff members will review your file to make sure you receive the lowest quote possible.

What information is needed to apply?

Our application requires the bond type and amount, business name and location, as well as contact and owner information including social security numbers.

How long does it take to get approved for Surety Bonds?

Approval times depend on a number of factors including the type of bond being applied for and the underwriting criteria required. Typically, we can have approvals for our clients within a few hours of their application submission.

After approval, the bond’s issuance is generally the same day as we receive your payment, indemnity and any other documents that the surety requires to release the bond.

Do you pull my Credit Report to obtain pricing?

Yes. Our markets do a soft insurance pull through one or more of the major credit bureaus to provide pricing. Soft credit pulls for insurance reasons do not appear on your credit report and should have no effect on your credit score.

How much do Surety Bonds cost?

The cost of a particular surety bond is primarily dependent on the credit score (FICO Score) and financial standing of the principal, or individual purchasing the bond. Your credit score (FICO Score) is calculated by major credit reporting agencies and serves as an indication of your ability to fulfill your business related obligations and financial wherewithal to address potential situations which may result in a bond claim.

How can I get a better quote?

Protecting your personal credit is the most important tool you have to improve your quote. Additional information that can help lower your quote are your business and/or personal financial records.

Can a co-signer be used to lower my bond quote?

Yes, we have markets that accept co-signer applications. Please contact our underwriting staff for additional information.


Do I pay the full bond amount to purchase the bond?

No. Typically, you will pay a certain percentage of the bond amount, determined by a review of your credit report and financial standing.

Do you pay for Surety Bonds monthly?

No. Surety companies require payment in full before they will issue a bond to the principal.

Do you have financing available for bond purchases?

Yes. For applicants who qualify for higher premium amounts due to bad or no credit, we have markets with financing options available. Please consult our underwriting staff for additional information.

What forms of payment do you accept?

We accept all major credit cards, wire transfers and business/personal checks as payment.

How long is a bond in place?

Generally, bonds are in place for 1 – 2 years and must be renewed at the end of the term with the surety company to remain in force. In some cases, the bond form will have a specified term length that must be followed.

Are Surety Bonds refundable?

That depends. Most surety companies have a policy which states the first year’s premium is fully earned. What this means is that no matter when you cancel in the first year, you will not be eligible for a refund. Typically, after the first year, anything that is canceled would be eligible for a refund on a prorated basis. Also, certain types of bond are non-cancellable and would not be eligible for refund. These include contract, construction and court bonds. Please consult our underwriting staff for additional information.


What is an Indemnity Agreement?

An indemnity agreement is the legally binding contract that ties you to the surety bond. By signing the indemnity, you agree to pay the surety company back for any monies (including legal fees) paid out to resolve claims that you have caused. If you cannot pay back the surety, your corporate and personal assets can be used for repayment. Indemnities are required, and you cannot purchase a surety bond without signing one.

Why does my spouse have to sign the Indemnity Agreement?

Legally, you and your spouse share joint assets. In a worst case scenario, if you are unable to repay monies used to resolve a claim, the surety company will use your corporate and personal assets, including your shared assets, for repayment. For this reason, your spouse is required to sign the indemnity agreement.


Will the state accept a faxed or emailed copy of the bond?

Typically, government agencies will only accept the original signed and sealed bond. Please consult the obligee for specific information regarding their requirements.

What if I move my company or change its name after I have purchased a bond?

Email or fax a request to our office with the new address or name and we will issue a change rider to the bond. A new bond will not be required.

Why do I get my renewal invoice so early?

Most bond forms have cancellation clauses that require the surety to provide written notice to the obligee  30, 60 or 90 days in advance of the bond’s cancellation date. We typically send out renewal invoices 90 days in advance to give you time to renew and the surety time to notify the obligee. The due date on your renewal invoice will match the bond form’s cancellation clause.

I highly recommend Pacific Surety. If you have any doubts as to where to get a bond, trust me when I say that you won’t have to look anywhere else for a better price or a better service.

Alejandro Covarrubias

Covarrubias Enterprises Auto Sales