What Determines the Cost of a Surety Bond?

The price of surety bonds can vary greatly, and many people are unclear of why this is. When determining premium, surety companies are looking to determine the amount of risk there is with an applicant by considering at a variety of indicating factors. Below are some key factors that may be considered when determining bond premium.

Type of Surety Bond

There are many different types of surety bonds and the type of bond required can vary in price. This is due to the fact that each surety bond guarantees a unique risk, and the level of risk the surety company is taking on is factored into the premium. In short, the higher the level of risk the higher the premium. For instance, a construction bond is typically more expensive than a business license bond since more risk is involved with construction projects.

Term of Bond

The length of term for a surety bond is usually one year, however, extended terms are more expensive because the surety company is being exposed to risk for a longer period of time.

Credit Score

Low credit scores can impact premiums since sureties may see this as an indicator of an applicant having financial issues at some point, and therefore at an increased risk of loss in the future. A high credit score, however, shows the surety that they can count on the applicant to pay back the amount if needed.

Industry Experience

Professionals with more experience in the industry could be more likely to have lower premiums. This is due to the fact that those with a track record of experience are more likely to finish projects and avoid professional mistakes. 

Have more questions about surety bonds or construction insurance? Our experts can help answer any questions you have, reach out to AssuredPartners Construction today.