Surety Bonds in Alabama
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Surety Ins Inc is an Alabama based Agency serving the State of Alabama. With access to a broad range of surety markets, our expert agents are ready to assist with all of your Alabama Surety Bond needs.
What is a Surety Bond and When Do You Need One?
A surety bond is a legally binding contract that ensures obligations are met — or in the case of failure, that recompense will be paid to cover the missed obligations. Surety bonds can be used to ensure that government contracts are completed, cover losses arising from a court case or protect a company from employee dishonesty.
What is a surety bond?
Surety bonds are a promise by a surety company to pay a first party if a second party fails to meet its obligations. Three parties are involved:
- The principal: The person who must make good on an obligation.
- The obligee: The person who needs a guarantee that the principal will perform.
- The surety: The issuer of the surety bond guaranteeing that the principal will meet its obligation.
What does a surety bond guarantee?
For license & permit bonds, they guarantee that a principal understands and follows the regulations outlined for their specific license. This is where the term “license & bonded” comes from. Examples of a license violation could include fraud, misrepresentation, or late payment. If a covered violations causes a claim against the bond that the principal is unable to resolve, the surety will be required to pay the claim to the obligee.
In the construction industry, surety bonds typically ensure that a bonded contractor will fulfill their obligations specified in a signed contract. If a bonded contractor defaults on the contract, the surety guarantees that the obligee will be made whole. This can include either a financial payout or taking other actions to make sure the work is completed per the terms of the contract.
What determines the cost of my bond?
Your bond’s cost or premium is a fraction of the full bond amount. It can vary between 1%-4% of the total bond amount for standard market rates and 5%-15% for applicants with bad credit.
How high your bond rate will be, depends on a series of financial factors that sureties take into account when reviewing your bond application. These factors are:
- Personal credit score (most importantly)
- Personal and business financials
- Your industry experience
- Other financial and business factors
Standard market rates are usually offered to applicants with a high credit score, one of 700 FICO or more.
Applicants with less than perfect credit, bankruptcies or other financial difficulties are offered higher rates due to the higher risk involved in bonding them.