In a nutshell, an insurance bond in California is a guarantee that is issued by an insurance company. Rarely are they called insurance bonds as they are better known as surety bonds although some also call them insurance surety bonds. These insurance bonds are purchased by a contractor or supplier of goods or services which act as a guarantee for the contractor’s customer that the work will be done and done in complete conformance with the specifications. A bail bond is a form of surety bond as it guarantees to the court that the individual who has been granted bail will return to the court as required.
The surety bond guarantees to the owner that the project will be completed, it guarantees that the contractor has the finances required to complete the job and in the event the contractor fails in his obligation, the bond money will allow the owner to engage another contractor to finish the work.
An insurance bond in California is usually a requirement to being awarded a contract, as a bond levels the playing field it allows small business to compete with big business for the same job. If the contract is with a federal agency, an insurance bond is mandatory regardless of how big or how small the company is that is bidding on the work.
When an application is made for the surety bond, the underwriter asks for a great deal of detailed information about the company’s history with similar projects, the companies credit rating and the financial statements including perhaps three years worth of P&Ls, balance sheets and cash flow statements. When the application is approved, the company will be charged a premium, identical to an insurance policy. The rate will vary depending on the outcome of the underwriter’s evaluation and is based on the value of the contract.
There are benefits for both the contractor and the owner when a surety bond has been raised. For the contractor it eliminates the need for him to tie up a lot of money upfront, as without the bond, the contractor would be faced with having to put up cash as the guarantee. From the owner’s point of view, he knows that the job will get done so there is a great deal of peace of mind involved.
An insurance bond in California is a requirement for many reasons. If you are a contractor, motor vehicle dealer or detective you are welcome to contact for a quick quote for your surety needs.
