The process of obtaining a bond:

Surety Bond vs. Insurance

In traditional insurance, the risk is transferred to the insurance company. In surety bonding, the risk remains with the principal. The protection of the bond is not for the principal, but for the obligee. With insurance, the insurance company considers that a certain percentage of the premium for the policy will be paid out in losses. In true suretyship, the premiums paid are "service fees" charged for the use of the surety company’s financial backing and guarantee. In surety bonding, sureties view their underwriting as a form of credit so the emphasis is on prequalification and selection. Not everyone is eligible for bonding, these days it is getting harder and harder to obtain a bond. Finding a bond with poor credit or a new business only adds to the frustration of finding someone to write a bond for you.

What Does is mean to be “bonded”?

The phrase “licensed and bonded” is one you might see on the side of a contractor’s truck, on a mortgage broker’s business card, or on an auto dealer’s billboard. Obviously, they are all using the phrase for a marketing advantage over their competitors to show they are safe to do business with. What does it mean for these companies to be bonded? It means that a bonding company (also known as a surety) is guaranteeing the performance of their business per the terms of the filed license. If the bonded business (the principal) fails to fulfill the bond guarantee, then the obligee (whoever is requiring the bond) can file a claim to recoup losses incurred.

These bonded companies are not purchasing bonds simply for advertising purposes; they obtain them because they are required to by the government to legally operate. There are literally hundreds of different occupations that are required to post a surety bond to local, state, or Federal governments. It is extremely important to find out whether you need to post a bond to run your business. Operating without a bond when one is required always results in the government halting your businesses operations.

McCormick Insurance Bond Forms
Surety Bond Types
Basics of Surety Bonding