A surety bond is a type of guarantee. It helps customers and clients have financial support should a business they hire fail to provide the type or amount of service they need. This need is often based on an agreed contract.
It is always a good idea to get surety bonds if your business plans to bid on projects or enter into larger contracts. In fact, the company offering the contract may require you to have one.
Surety bonds can help to safeguard your work and protect the customer. Yet, many companies worry about the costs related to the bond.
How Much Do You Pay for a Bond?
Surety bond costs range significantly. The first thing to know is how much of a bond you need. The bond value should be enough to cover the actual cost of the work, including materials and labor. This allows the insurer to have the work redone should it fail to meet the requirements of the contract.
First, select the amount of coverage. Then, your insurance company will then determine the bond's cost. The size of the bond usually plays the biggest role in the cost.
Afterwards, the bond issuer will consider how likely it is for you to cause a claim on that bond. This helps determine the premium. Premiums are the cost of obtaining the bond. This is what you will pay. Claims are instances when the customer on the contract asks the insurer to cover his or her loss due to poor workmanship, failed completion, or other covered incidents.
To determine how much risk you present, the insurer will consider numerous factors including:
- Your personal credit for smaller companies and business credit for larger companies. This shows how trustworthy you are to repay the funds if owed.
- Your industry experience. Newer companies will spend more to receive the same type and amount of protection.
- The line of work. The type of work matters due to how risky or difficult it is to perform
If an insurer receives a claim on the project, the company (you) will still be responsible for paying the bond claims. This is more than your premium. Having the right type of business insurance is important here. That's because it can be difficult for many companies to overcome this type of financial loss.
Texas Insurance Agency is here to help you get the coverage you need with a Houston surety bond. Give us a call at (713) 921-8000 for more information.