Surety bonds can get quite confusing. Although the fact is, many Americans don’t know a whole lot about them. Here are 5 uncovered myths to provide a better understanding about surety bonds.
MYTH #1 SURETY BONDS AND INSURANCE ARE THE SAME THING.
Surety bonds are not the same as insurance when it comes to risk factors, rates, and expectations. Also, surety bonds require 3 parties: the principle, the obligee, and the surety company. With insurance, there are only 2 parties involved: the insurance company and the person who purchases the insurance.
MYTH #2 SURETY BONDS PROTECT THE PERSON WHO BUYS THE BOND.
The party who requires the bond is protected, not the party who purchases it. For example, a Motor Vehicle Bond (for a car dealer) in the state of Idaho protects the state of Idaho and the customers of the car dealer. The state of Idaho is requiring the car dealer to have a Motor Vehicle Bond in order for the business to be run.
MYTH #3 EVERY PERSON PAYS THE SAME AMOUNT FOR A BOND.
Surety bonds do not sell at a flat-rate for everyone. The price of the bond depends on factors such as the type of bond, amount of coverage, credit history, and financial strength of the client. These factors are represented by the bond premium. A surety bond’s cost is a small percentage of the required bond amount (except for contract bonds for public jobs).
MYTH #4 ONLY CLIENTS WITH GOOD CREDIT CAN BE BONDED.
Reliable surety companies are able to ensure clients even with bad credit. If a client has poor credit, the price of the bond will be greater. As an example of how it works, a Hawaii Motor Vehicle Dealer Bond requires a $25,000 bond amount, with a surety cost of $250.00 for a client with great credit. Although for a client with poor credit, this bond is still achievable but will come at a slightly higher cost. For more information on customers with bad credit wanting to get bonded, take a look at our blog here.
MYTH #5 THE SAME SURETY BOND CAN BE USED IN MORE THAN ONE STATE.
Each state possesses different rules and regulations. For this reason, the same bond will not be valid throughout different states. For reference, a Michigan Motor Dealer Vehicle Bond abides by different rules and regulations than the same type of bond in California.
To apply for a bond, visit us at Surety1.com for a free quote from one of our skilled agents!