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License Bonds, Permit Bonds and Miscellaneous Guarantee Bonds are a type of surety bond, sometimes referred to as commercial bonds or simply license bonds. These license and permit bonds are required by government agencies as a pre-licensing requirement for a number of different businesses.


Commercial General Liability Insurance (CGL) is a type of insurance policy that provides coverage to a business for bodily injury, personal injury and property damage caused by the business’ operations, products, or injury that occurs on the business’ premises. Commercial general liability is considered comprehensive business insurance, though it does not cover all risks a business may face.

Lost Document Bond

A Lost Document Bond (also known as a Lost Instrument, Lost Note or Lost Deed Bond) is used when a financial certificate is lost or stolen. Before the bank or financial institution issues you a replacement, they might require you to secure a Lost Document Bond.

License Bonds, Permit Bonds and Miscellaneous Guarantee Bonds

A license and permit bond guarantees that a business will operate in accordance with federal, state, or local laws and regulations. Each license bond is specific to one industry, and protects customers and/or the state from damages. Most commonly, license bonds protect governments and consumers from fraudulent practices committed by the business that is bonded. In any industry that requires bonding, each business must be licensed and bonded before they are allowed to legally operate.


A performance bond, also known as a contract bond, is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.

Errors and Omissions Insurance (E&O)

Errors and Omissions Insurance (E&O) is a type of professional liability insurance that protects companies and their workers or individuals against claims made by clients for inadequate work or negligent actions. Errors and omissions insurance often covers both court costs and any settlements up to the amount specified by the insurance contract.

Auto Dealer Bonds

Auto Dealer Bonds are guarantees that protect your customers. Should you break the rules, your clients can make claims against your bond which you’re responsible to pay. For example, if you sell a vehicle with invalid tags, a claim can be made.


How Do Surety Bonds Work

The Obligee

The person or company requiring the bond, which is most often a government agency, regulation department, state/federal court, or general contractor.

The Principal

The person or company purchasing the bond and promising to adhere to the terms of the bond (a contract or legal regulations).

The Surety

The insurance company that is backing the bond for the principal and guaranteeing payment to the obligee if a claim is made.

Unlike a traditional insurance policy where the principal pays an ongoing premium for coverage, surety bonds are part insurance and part credit. To put it simply, surety bonds are insurance policies for the obligee that are backed and paid for by the principal.

The surety sits in the middle – offering a guarantee of payment to one party and collecting the payment (if a claim is made) from the other party. When the principal purchases a surety bond, they are buying a line of credit. The surety is simply saying, “They’re good for it.”

Most often, surety bonds are required by a government agency, regulation department, state or federal court, or general contractor.

The surety bond is used as a guarantee that the principal will fulfill the terms of a contract (contract or construction surety bonds) or abide by the laws that regulate their business (commercial surety bonds). If an obligee feels that the terms of a contract were not fulfilled or if a business is found to be in breach of the laws that regulate their business, a claim can be made against the surety bond. If the surety finds that the claim is valid, the surety will pay the claim, and the principal is responsible for reimbursing the surety for the claim and any legal costs.


What Bonds Do I Need?


If the surety bond is based upon a specific contract, you will need a contract bond, also known as a construction bond. This is a broad category with specific surety bonds available.


If the surety bond is related to adhering to the laws and regulations that apply to your industry, you will need a commercial bond. This is a broad category with specific surety bonds available. There are two major sub-categories of commercial bonds: license & permit bonds and court bonds.


If the surety bond is required to receive licensing or permitting, you will need a license and permit bond. This is a sub-category of commercial bonds designed to protect the general public by guaranteeing compliance to regulating laws.

If the surety bond is connected with a legal proceeding, you will need a court bond. This sub-category of commercial bonds is used to minimize losses resulting from a court ruling or to insure compliance with court-mandated actions.

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