Contractor License Bond | Worldwide Insurance Specialists
A contractor license bond is a surety bond that a state or local licensing agency requires before it issues or renews a contractor license. The bond guarantees that you will follow the licensing laws that apply to your work, and it gives customers, employees and the public a way to recover money if you don't. Requirements vary by state, locality and trade, so the right bond depends on where and what you build.
How a contractor license bond works
The bond is an agreement among three parties: you, the contractor (principal); the licensing agency that requires the bond (obligee); and the surety that issues it. For example, if you abandon a homeowner's remodel halfway through, the homeowner may be able to make a claim against your bond. If the claim is valid, the surety pays the homeowner up to the bond amount.
Bond amount and your premium
The bond amount is the most the surety will pay on claims, and it is set by the agency that requires the bond. It is not the price you pay. Your premium depends on the surety's underwriting, including your trade, credit, time in business and business finances. Request a quote for your license rather than relying on a fixed price or percentage.
What a claim can involve
What a bond covers depends on the law behind it. Depending on your state, claims may involve:
- Abandoning a project or failing to complete contracted work.
- Violating building codes or state contractor license laws.
- Failing to pay employees the wages or fringe benefits they are owed.
- Fraud or misrepresentation in dealing with customers.
Requirements vary by state
Bond amounts and rules differ widely. California requires a $25,000 contractor license bond, while Nevada's State Contractors Board sets each contractor's bond between $1,000 and $500,000 based on the size of their operations. The bond amount is a limit for all claims, not a separate amount for each job. Each agency also has its own bond form, so make sure your bond is filed on the correct one. Cities and counties may have their own requirements too.
What happens when a claim is filed
The licensing agency may review the complaint against your license while the surety separately investigates the claim against your bond. You will usually have a chance to resolve it first. If the claim is not valid, it is denied. If it is valid, the surety pays the claimant and you must repay the surety. Unlike general liability insurance, a bond does not take the cost off your hands.
Keeping your bond in force
Many contractor license bonds renew each year, and you pay a new premium at each renewal. Letting a required bond lapse can lead to suspension of your license, so renew on time. Some trades, such as electrical, plumbing and landscaping, may have their own bond requirements in addition to a general contractor bond.
Not sure which bond you need?
WWIS is based in Litchfield Park, Arizona, is licensed in all 50 states and has helped contractors with license bonds for more than two decades. Call 888-518-8011 or email [email protected] and we'll help you find the right bond for your license.
If you or your business needs help in obtaining a surety bond or commercial insurance give us a call!