Some surety bonds expire, whereas others continue on indefinitely until the principal (you) becomes “released.” If you’re required to have a bond, use this quick guide to help understand your obligations:
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2 Types of Surety Bonds
Surety bonds are either License Bonds or Contract bonds. License bonds hold professionals accountable for standards of conduct and are typically required before being granted a professional license. Contract bonds hold the parties involved in a contractual relationship accountable, and are typically required before a contract is finalized.
Length of Licensing Bonds
Nearly all license bonds last for 12 months, after which they must be renewed. If they are not renewed, the bond becomes inactive and your professional license will generally be cancelled by the State or Federal entity that granted it. Working without a license is illegal and subject to strict penalties, so it’s essential to renew your license bond on schedule.
Length of Contract Bonds
Contract bonds run for the entire length of the contract, but they still require annual renewal. Unlike licensing bonds, however, contract bonds don’t expire if they are not renewed. The principal MUST renew the bond until they are released by the obligee (the party requiring the bond).
Renewing Surety Bonds
Contract and license bonds have similar renewal processes. With license bonds you may be asked to submit your updated financial information, and an updated credit check may be run so that underwriters can assess your credit risk. Based on that risk, you’re quoted a premium that may be higher or lower than your original premium (depending on how your credit has changed). This is not true for ALL license bonds as some are considered low risk, however it depends on the type of license bond at hand. With Contract Bonds, there is generally no re-evaluation of the principal. Premium or release is required regardless, and if neither is provided the account could end up in collections. In either case, after the bond is renewed it is active for 12 months after renewal date. The process repeats yearly as long as the bond is needed.