Driving can be dangerous—especially when there is an inexperienced driver behind the wheel. That’s why it’s so important that driving schools follow all rules and regulations that help ensure public safety.
A driving school bond is a type of surety bond that schools who charge fees in exchange for driving instruction may be required to have in some states. The exact purpose of this bond can vary a bit by state, but generally the point of this specific surety bond is to make sure that driving schools are following all rules and regulations and don’t take any steps to defraud their clients.
Keep reading to learn more about why driving bonds are required in some states and how they work.
As briefly noted before, a driving school bond is a surety bond that helps protect students and it protects them in a few ways. Not only does it help ensure their physical safety, this type of bond can help protect them financially as well by insuring their unearned, prepaid tuition (aka tuition they’ve already paid for instruction but have yet to receive). If there is any breach in contract made by the school or any applicable state laws are broken, a student can make a claim against the driving school bond.
Like with any type of surety bond, there are three parties involved in a driving school bond:
Surety- This is the company that issues the surety bond and handles the claims process.
Principal- In the case of a driving school bond, the principal (aka the party who needs the bond) is the driving school.
Obligee- Usually, the obligee is a state government and this is the party that requires the driving school bond.
If a driving school that operates in a state where driving school bonds are required fails to secure one, then they risk being banned from getting a driving school license forever and paying fines for each individual violation they committed.
So, how can a claim end up being filed against a driving school bond? This is something the surety will want to avoid happening, so it’s helpful to know what can cause a claim. There are a few different situations that can result in a claim against a driving school bond, but primarily breaking state rules and regulations that put lives at risk or that can lead to damaging property are actions that lead to claims. Driving school surety bond agreements can vary by state, so it’s important you read the bond agreement carefully to know what exactly puts you at risk of a claim.
If someone files a claim against a driving school bond, the surety will investigate the claim. If they find the claim to be valid, they will reimburse the claimant for their damages up to the bonding capacity (we’ll explain what this is shortly). The principal is still on the hook for the final bill here and will owe the surety the money they paid out in the claim and will likely need to pay interest and additional fees. If the principal fails to pay back the surety, that debt may be sent to collections.
Before we dive into how much a driving school bond can cost, it’s helpful to understand the following three terms:
Bond premium- How much you will spend in order to secure a driving school bond is known as the bond premium.
Bonding capacity- The bonding capacity is the maximum dollar amount that someone can pursue when filing a claim against a surety bond.
Bond term- How long the driving school bond is active for is the bond term.
The bond premium is usually a set percentage of the bonding capacity (this required amount is usually set by the obligee). How much that percentage is can vary by applicant. Surety companies consider a variety of factors when determining what this percentage will be, such as:
Personal credit score
Business credit score
Years in business
One of the biggest factors taken into consideration is the applicant’s personal credit score and the higher their credit score is, the lower of a percentage they’ll be offered. This is because the surety will pay out any claims initially, which is essentially a form of credit, and they want assurance that you have experienced handling credit responsibly.
The bond premium varies by state, for example it is only $1,000 in Connecticut, but in Florida it is $50,000, so where you operate your business often has the largest impact on how much you’ll spend.
While it may seem like paying for a driving school bond is a nuisance, it will cost you much more to face the penalties that come with not having one than it will to maintain this bond.