Surety Bonds: Top 5 Common Misconceptions

If you’re in the construction industry, it’s very likely you’ve used a surety bond at one point or another. Obtaining one of these bonds promotes efficient business practice and creates a reputable image for your company. Before starting your next project, don’t forget to obtain a Florida Surety Bond Insurance policy to secure a positive working relationship and a proficient outcome.

A surety bond is a contractual agreement between a project owner or business guaranteeing that the project will be completed or business regulations will be followed, as defined by SuretyBonds.com. They are put in place to ensure the job is completed satisfactorily and that the principal doesn’t suffer damages from theft or job incompletion. Without further ado, let’s take a look at the top five misconceptions associated with surety bonds.

  1. They are Very Expensive- This is a widely spread rumor but it is highly inaccurate. Surety bond rates are typically between 1-3% of the total contract budget. This amount is often paid in full and reimburses the winning bidder by the first payment from the project owner.
  2. Sureties are All Created Equal- Make sure you research lenders and rates to see which option suits your needs best. Experts recommend a two-step authentication process in which you check the authority of the bond and verify the U.S. Department of Treasury approves your surety.
  3. Surety Companies Don’t Have Losses- In an eleven year span from 2002-2013, surety companies paid out an estimated $13 billion in claims. What’s more, surety bonds are known to help out contractors in times of financial difficulty if their relationship is in good standing and are also responsible for covering borrowed costs in the event of a bankruptcy.
  4. Only Small Companies Need Surety Bonds- Although bigger companies tend to have more income, that doesn’t mean they are impermeable to failure. Large companies are still susceptible to financial struggle and in such caliber, surety bonds would be required to compensate for substantial losses.
  5. Other Insurance Products will Cover Me Instead- Surety bonds are the only type of products that gives comprehensive coverage. Subcontractor Default Insurance or a letter of credit is not the same thing as a bond and only secures a portion of the contract amount. There is no comparable option if you want to completely protect your construction business.

At Newman Crane, we specialize in servicing the construction industry. We have a deep understanding of the unique risk exposures involved with operating a construction business and offer custom insurance policies to protect your assets. To learn more, contact our specialists today at (407) 859-3691.

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