Self-Insurance Bond
Business owners have the option to self-insure their worker's compensation policy, but they may need to get a specific type of surety bond first. Failure to acquire the bond could lead to serious legal and financial problems, so it's vital to understand how the bond works and to meet the requirements completely. This page explains everything you should know.
What is a Self-Insurance Bond?
A self-insurance bond (also called a bond of self-insurance) holds a business owner accountable for properly funding their worker's compensation Insurance policy. If they do not fund it adequately or follow other state rules relevant to worker's compensation insurance, people can file claims against the bond seeking damages.
The business owner must pay for all valid claims, but the surety company that backs the bond will step in to settle claims when they do not. Claims settled by the surety must be repaid by the business owner in full, with interest and fees added, or face loss of bond coverage and potential legal action.
How Does a Self-Insurance Bond Work?
In this and all surety bond types, there are three parties involved:
- Principal – The business owner who must obtain the bond and accept liability for claims.
- Obligee – The party with the right to file claims against the bond to recoup financial losses caused by the principal.
- Surety – The company that issues and backs the bond. The surety guarantees payment to the obligee, but the principal must pay back that debt to the surety.
Why Do You Need a Self-Insurance Bond?
Self-insurance bonds are a way to prevent the risk of someone opting to insure their own worker's compensation policy but not having adequate funds to pay for worker claims. By holding business owners liable for misconduct and mismanagement, these bonds create a powerful financial incentive to follow the state law exactly as written.
How to Apply for a Self-Insurance Bond
The steps to apply are simple:
- Fill out a surety bond application
- Agree to undergo a credit check
- Provide additional documentation (financial statements, business history) as necessary
The surety uses this information to quote the cost of the surety bond, which is called the premium. Bond coverage activates as soon as the premium is paid, at which point the surety provides documentation proving the surety bond requirements have been met.
Self-Insurance Bond Cost
Self-insurance bond coverage requirements vary by state. One of these bonds will cost a small percentage of the coverage requirement, typically less than 2%. Coverage remains active for 12 months (provided there are no claims), after which it requires renewal and another premium payment. Business owners should factor annual bond costs into their budgets.
Viking Bond Service for Self-Insurance Bonds
It can be difficult to find companies that issue self-insurance bonds, but Viking Bond Service can help. Our team can track down multiple competitive bond offers so that you get the best option available. Request a quote at your convenience. Or get more info from our team first – contact us or call 1-888-2-SURETY (1-888-278-7389).
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