Surety bonds are a financial agreement in which a surety or guarantor agrees to compensate one party if another party is unable to meet an obligation, like meeting professional licensing standards or completing a contract. Surety bonds have many applications in business and are especially important in the construction industry. This guide will break down everything you need to know about surety bonds, including for the construction industry specifically. In particular, this guide will cover what surety bonds are, how surety bonds work in the construction industry, the factors that affect surety bond costs, and what to look for in a surety company. Finally, this guide will cover some of our favorite surety bond companies, including the three top options below:
Our Rating: Best Overall
AM Best Rating: A+
Why We Like It: Offers a comprehensive selection of commercial bonds for businesses of all sizes
Try The Hartford
Our Rating: Best for Small Business
AM Best Rating: B++
Why We Like It: Allows customers to secure bonds online in minutes at below-average price points
Try Jet Surety
Our Rating: Runner-Up
AM Best Rating: A++
Why We Like It: Has one of the highest bonding capacities of any surety in the marketplace
*These links will take you to one of our insurance partners. The companies listed here may or may not be available at this time.
Understanding Surety Bonds
Surety bonds are an important tool—and often a requirement—for risk management in many situations. Whether you are a newly licensed business making efforts to comply with the law in your field or a contractor hoping to assure a potential client that you are capable of completing the job, surety bonds can hold you accountable for performing to certain standards. In the process, you also signal to customers, the government, or the public that you are doing so.
Surety bonds accomplish this goal by bringing in a third party who can offer compensation if you fail to meet your obligations to another person or business. You also put your own skin in the game in the process by paying premiums to that third party and agreeing to repay the cost of any claims against you.
Unfortunately, many businesses are unaware of why surety bonds are important until they learn that they need one to operate or enter a contract. This section of the guide will lay out some key information for you to know about surety bonds, including what they are, how they work, what types are available, and how they differ from various forms of insurance.
What Are Surety Bonds?
The easiest way to think about surety bonds is as a tool for risk management with some similarities to both insurance and credit. Surety bonds exist to ensure that businesses complete their work in accordance with the law and under the terms of their contractual agreements. Surety bonds accomplish this by involving a third party who will compensate customers for a business’s failures to meet their obligations and recover damages from that business later.
Say Business A agrees to perform work for Business B. Business B wants the certainty that either Business A will complete the work they agreed to as promised and within the legal standards for their industry, or, if Business A is unable to do so, that Business B will not suffer a financial loss or other risk as a result. To help guarantee this, Business A may be required—by law or by Business B—to obtain a surety bond from a third party. The bond is a promise that Business A will meet their obligations to Business B or, if they do not, that Business B will be compensated for Business A’s failure. Meanwhile, the third party charges Business A for taking on financial risk in the transaction and will seek to recover the costs of the claim from Business A later.
How Do Surety Bonds Work?
Surety bonds can be somewhat complicated to understand, as there are many purposes and applications across different types of businesses and industries. However, most surety bonds include some similar components and features, regardless of the specific terms or use case. To understand how surety bonds work, it is important to know first who is involved in a surety bond agreement and then to understand the elements of each bond.
At their heart, surety bonds are an agreement between three different parties: a principal, an obligee, and a surety.
- Principal: The principal is the individual or business who obtains a bond from a surety to guarantee their ability to fulfill obligations to another party, the obligee.
- Obligee: The obligee is the entity that requires the bond from the principal. Obligees require bonds to minimize their risk and financial loss in the event that a principal cannot meet its obligations. Obligees receive compensation from the surety in the event of a claim against the principal.
- Surety: The surety is the company that underwrites the bond to back the principal financially. If the principal is unable to meet its obligations and the obligee makes a claim, the surety will pay out the claim.
Each bond agreement looks a little bit different, but principals and sureties will usually need to work out a few particular elements or criteria as part of the agreement. These include the bonded amount, the principal’s working capital, the bonding capacity, the bond premium, and the bond term.
- Bonding capacity: Bonding capacity is the maximum amount of coverage a principal can obtain from a surety, usually based on the principal’s finances, track record, and reputation. Businesses that sureties determine to be more reliable will likely be able to obtain a higher capacity. Capacity can be set either for individual jobs or as an aggregate limit across all of a principal’s projects.
- Working capital: Working capital is a factor that surety companies will evaluate before underwriting a bond, calculated as the difference between a company’s current assets and current liabilities. Because sureties will require reimbursement from a principal in the event of a claim, they want to know what sort of financial cushion a business has to repay its debts.
- Premium: Surety bond premiums are calculated as a percentage of the bond amount. The rate is set based on factors like you or your business’s credit history, the likelihood of loss or other risks, and your business’s financial statements, like your balance sheet.
- Term: The surety bond’s term is how long the bond remains in effect. If the term has ended, the principal will no longer pay a premium and the surety no longer holds the risk of the bond.
Surety Bonds vs. Insurance
Insurance and surety bonds are both common forms of risk management in business, and a business may require both in order to operate. And they share one important attribute in common: both insurance policies and surety bonds help compensate one party in the event that something goes wrong. The key difference is in the parties involved—and specifically, which parties carry risk in the agreement.
Under an insurance policy, a policyholder pays their insurance provider a regular premium in exchange for the insurer accepting the financial risk to pay for certain types of losses. For many types of coverage (e.g. under property insurance), an insurer will reimburse the policyholder in the event of a loss. If someone brings a successful claim against the policyholder (e.g. in a liability claim), the insurer will pay out the cost to whoever brought the claim, and the policyholder will not have to contribute financially beyond their premiums and deductible.
Under a surety bond, financial risk ultimately remains with the individual or business that obtained the bond. The surety bond represents a promise that the principal will fulfill their commitments to the obligee; the surety is involved to guarantee that the obligee will receive compensation if the principal cannot actually cover a payment in the event they fail to meet their legal or contractual obligations. Ultimately, however, the principal must repay the surety in the event of a claim, which means that the financial risk of the agreement always remains with the principal.
Surety Bonds vs. Letters of Credit
Because of the differences between surety bonds and insurance described above, it can also be helpful to think about surety bonds as a form of credit, in which principals pay a premium to a surety to borrow money if needed for compensation to the obligee.
Letters of credit perform a similar function. A letter of credit is an agreement between a customer (the same as a principal), a beneficiary (the same as an obligee), and an issuer, traditionally a bank. Under a letter of credit, the issuer promises to advance compensation for a claim to the obligee, but the bank customer is ultimately responsible for repaying the claim cost.
Letters of credit differ from surety bonds in a couple of important ways that may make them less desirable to the business seeking out the LOC. The first is that a letter of credit requires a collateral deposit from the business in the amount of credit in the LOC, which the business cannot touch while the letter of credit is outstanding. This means that in contrast to surety bonds, which only require principals to pay a premium, a letter of credit limits the cash available to a business. The second difference is that unlike surety bonds, which allow the surety to evaluate the claim, banks must pay on the letter of credit regardless of whether the beneficiary has proven a breach of contract or some other harm.
Types of Surety Bonds
With a firm understanding of what surety bonds are and how they work, it’s time to review the three broad categories that most surety bonds fall into.
Contract bonds are bonds that guarantee that the terms of a contract will be carried out. The terms to be fulfilled may fall in multiple dimensions, like a business’s obligations to perform the work that they say they will complete or their obligations to pay suppliers or subcontractors for their work on a project. Many obligees—especially government clients—require a contract bond to be filed before a business is allowed to bid on a project or enter a contract. On the front end, this helps hone in on only those businesses who will be able to fulfill the terms of the contract. Over the course of the project, contract bonds minimize the financial risks associated with project failure.
Commercial bonds are usually a legal requirement for a business to be licensed to operate, enacted by a federal, state, or local law. The purpose of these bonds is to protect the public: if a business acts illegally or in a manner that harms a customer or member of the public, the surety bond will compensate someone who brings a successful claim against that business, and the surety will seek to recover the cost from the business. Commercial bonds can be used in any number of industries to make sure companies meet their obligations under the law and to their customers, from auto dealers to warehouses to notaries to alcohol manufacturers and distributors.
A court bond is a surety bond that one would need to secure when acting as part of the court system. Such bonds may be required to reduce the risks of financial loss or to make sure that someone who has been tasked with a certain responsibility by a court of law completes that task. For example, if a court makes a financial judgment and one party makes an appeal, the court may require a bond to be put in place to ensure that the party who wins the judgment receives payment if the appeal fails. Another example is a bond put in place for a certain individual who is appointed as a guardian or custodian for minors, to make sure that the individual acts in the best interest of the minor. Similarly, a bond might be put in place for the executor of a will, to ensure that the executor distributes the estate’s assets appropriately.
Are Surety Bonds Required?
There are thousands of different types of surety bonds, and accordingly, surety bond requirements differ substantially depending on the industry that a business operates in and the federal, state, and local laws that a business is subject to. Additionally, statutory requirements may outline how much coverage a business needs to obtain. To be certain of whether your business is required to have a surety bond—and what type of bond(s) you need if you do—it is best to consult directly with a risk management professional or a surety with expertise in your industry and jurisdictions.
Generally, however, surety bonds are required in the following cases:
- As a requirement of licensure or permitting. If you work in a business where you must meet certain licensing standards in order to operate, you may be legally required by the government to obtain a surety bond, depending on the laws governing your industry in your location. These bonds essentially guarantee that you will follow all of the laws, rules, and standards of your profession and exist to protect the public. All states have websites that list specific bonding requirements by industry, like the CSLB in California.
- When entering into certain government contracts. To protect public resources, many federal, state, or local governments will require some contractors or vendors to have surety bonds. For instance, the federal government and many state and local governments require a surety bond for any construction contract valued over $150,000.
- Under certain court proceedings. Sometimes a court bond will be required of one party in a legal case to protect another party from financial loss or to ensure that an individual or entity carries out tasks required of them by the courts.
The common thread in these situations is some involvement of a government actor with an interest in protecting the public or public resources. In most cases with private parties, any requirement for a surety bond will be at the discretion of the entity you contract with.
Understanding Construction Bonds
One of the most common, important applications for surety bonds is in the construction industry. Construction projects can be fairly risky, with lots of parties involved and a good amount of money at stake. Owners want to work with reliable contractors, contractors want to work with reliable subcontractors and suppliers, and everyone wants to receive the payment or products they were promised at the end of the job. The structure of a surety bond helps provide those reassurances to different parties involved in a construction project.
Surety bonds for construction can take several forms depending on the specific context of a project. This section of the guide will explain the different types of construction bonds, how to obtain them, and other important information about surety bonds in the construction industry.
Construction Bonds vs. Insurance
As mentioned in the previous section, surety bonds and insurance are distinct products that both address different forms of risk that may take place in a business transaction. This is true for construction as well, so it is important to recognize how surety bonds and insurance look different in the construction industry.
Insurance policies deal with many risks that may come up on a construction project. For instance, if you are working on a building and a fire destroys the structure while it is in progress, a builder’s risk policy will cover the damages. If you have a bulldozer stolen from a job site, certain types of inland marine policies will compensate for the loss. If an employee is injured on a job site, a liability policy will pay out the employee’s claims. In all of these examples, an incident could make it more difficult to complete the project as planned, but the policyholder is the main beneficiary: a contractor or project owner pays premiums to the insurer, and the insurer provides compensation to address the damage.
The surety bond arrangement distributes risk differently. If a contractor violates the terms of their contract or fails to perform in some way, the surety may advance the payment for an obligee’s claim, but the surety will ultimately collect the full amount of the payment from the contractor. This means that a construction bond primarily protects the financial interests of the obligee, who is frequently the project owner but may also be a primary contractor who sets bond requirements for a subcontractor or supplier.
The Most Common Types of Construction Bonds
As is the case in other fields, bonds in construction can fill a variety of roles and purposes under both commercial and contract bonds. The most common types are bid, performance, and payment bonds, which are all various forms of contract bonds. These types are defined below, along with several other types that are used throughout the industry:
- Contractor License Bonds – Contractor license bonds are a form of commercial bond that different types of contractors must purchase in order to be licensed by a government authority. They represent a promise that contractors will behave ethically and comply with all relevant rules and regulations for their industry in the jurisdiction in which they operate.
- Bid Bonds – Bid bonds are a type of contract bond under which a bidder promises to honor the terms of the bid once they enter into the contract. This prevents contractors from submitting artificially low bids and raising their prices once the contract begins.
- Performance Bonds – Performance bonds are another contract bond and one of the most important in construction. Performance bonds are essentially a guarantee that the project will be completed satisfactorily.
- Payment Bonds – Payment bonds are a form of contract bond posted by a contractor to guarantee that suppliers, laborers, subcontractors, and other vendors who work on a project will be compensated. If a party has earned money on a project and the contractor refuses or is unable to pay, they can file suit against the contractor to receive what they are owed.
- Maintenance Bonds – Once a project is complete, the owner of a construction project may want additional protection for particular defects or faults that may not become apparent until later. Maintenance bonds guarantee that the contractor will address certain faults and defects for some time after the project is complete.
- Supply Bonds – Supply bonds are a type of contract bond to ensure that suppliers provide the supplies and materials they agree to in a contract for a particular project.
- Subdivision Bonds – For some development projects, a political jurisdiction like a local government may require the developer to guarantee the completion of improvements like sidewalks or electrical systems as a condition of the development of a subdivision.
Surety Bond Requirements for Construction
Surety bonds are often legally required for publicly financed construction projects. Legally speaking, one of the most important requirements a contractor might encounter is the federal Miller Act, which requires general contractors to post performance and payment bonds for any construction contract valued at more than $150,000. Additionally, many states have followed suit with “Little Miller Acts” that impose performance and payment bonds for state building contracts. These requirements vary by state, so you should be aware of the requirements for the jurisdiction where the project is based. Further, many municipalities require a subdivision bond to guarantee that certain infrastructure improvements are completed as a condition of permitting a development.
When dealing with private owners, bond requirements will be at the owner’s discretion. If the owner is more risk averse or wants to deter contractors who do not have a strong track record from bidding, the owner may impose a bond requirement. However, most owners who require a surety bond understand that contractors will bid such projects at higher prices to account for the time and money spent to obtain bond coverage.
Finally, prime contractors may also choose to establish bond requirements for suppliers and subcontractors. Contractors have a financial stake in making sure projects succeed, so they may want assurances from others working on the project that work will be completed or materials delivered as promised.
How to Obtain a Construction Surety Bond
To get started obtaining a surety bond, the first step is to understand the type(s) and amount of bond coverage needed for a project. You should consider any applicable federal or state laws, along with any other specific requirements particular to the project in question. If you are the prime contractor, most jobs will involve a bid bond, performance bond, and payment bond.
Next, your business should seek out sureties who can provide a bond for you. Not every surety is appropriate for every type of business and job. Luckily, however, it is easier than ever to find information and quotes online for surety companies that fit your needs based on your location, business characteristics, and the type of bond(s) you are seeking.
As you move forward, the surety will begin an underwriting process to more fully evaluate the risk associated with covering your business for the project in question. The underwriter will evaluate factors like your firm’s finances, professional experience and capability to carry out jobs, organizational structure and management practices, and your personal character. Based on these factors, the surety will set the bond premiums—charging more for riskier principals or projects and less for those with a high likelihood of success and reliability.
Once you’ve obtained your surety bond, you are ready to file it with the obligee and move forward with the project.
Type of Construction Work That Is/Isn’t Covered
Surety bonds are just one tool for risk management on construction projects, so businesses should understand what protection a surety bond will and will not cover.
In that regard, it’s worth remembering first that surety bonds are not the same as insurance. This is because surety bonds do not necessarily protect the principal’s interests—instead, principals retain financial risk associated with project failures, and surety bonds instead represent a promise to obligees to complete a job under the conditions promised. In sum, this means that surety bonds for construction will cover financial harm coming from one party not meeting their obligations on a project. This includes situations like a contractor failing to complete a project for a project owner, a contractor failing to pay their subcontractors for work completed, or a supplier not providing the materials they promised.
Surety bonds will not cover every situation like those listed above, however. Sureties frequently decline to cover certain types of projects that they deem too risky (or just have a hard time accurately gauging the risk for). Some common examples of projects that surety bonds will not cover include:
- Overseas projects: Construction projects in other countries may have different requirements for licensure and bonding that are difficult for sureties to manage.
- Projects on Indian reservations: Similarly to overseas projects, Indian reservations are not subject to the same federal and state requirements as other jobs, which makes them harder for surety companies to cover.
- Long-term construction projects: Projects that will take multiple years to complete may be less likely to receive a bond because the longer timeframe makes it harder to predict risks further out.
The Pros & Cons of Construction Bonds
Because surety bonds in construction are an agreement between different parties, principals and obligees each get different benefits and drawbacks from the arrangement. Really, the pros and cons for each party are a mirror image, as the positives for principals may be negatives for obligees and vice versa.
The main beneficiaries are obligees, usually the project owner. The pros for obligees are that the bonding process often weeds out underqualified or risky contractors because sureties will decline to cover them and that the surety will fulfill the contract if the contractor fails to meet their obligations.
For a contractor, this means that they may be more limited in the types of jobs they can get, and for the jobs they do win, they retain the financial risks of project failure. However, the upside is that compared to other alternatives like letters of credit, construction bonds tie up less of the business’s capital and have friendlier terms for the principal—most notably that the surety can investigate claims more closely to evaluate their merits.
One downside for both owners and contractors is the premiums that must be paid to the surety. Since sureties collect payment from a principal after paying out a claim, contractors will be on the hook for their failures regardless, but they have to pay a premium to the surety to obtain the bond. This is a slight downside for owners as well because contractors often factor in that cost when submitting a bid, though many consider the trade-off worthwhile in light of the benefits.
Surety Bond Costs & Premiums
In many industries, surety bonds are an unavoidable part of doing business. It can be a bit of a headache to seek out the bonds required for a project and pay premiums to obtain the right coverage, but doing so is essential for many transactions. But that doesn’t mean that business owners need to break the bank paying for the cost of a bond.
This section of the guide will lay out the typical range of costs for surety bonds along with the factors that affect rates. This information will help you know what to expect as you shop around for surety bonds.
How Much Do Surety Bonds Cost
The cost you pay for surety bonds is usually calculated as a percentage of the overall bond amount. In the majority of cases, the percentage rate is set between around 1% and 5%, based on the principal’s finances and credit history, the nature of the job, and other factors. However, rates can sometimes be as low as .5% or as high as 20%.
Principals who are considered by the surety to be more likely to fulfill their obligations will pay a lower rate, while those who are seen as less reliable will pay a higher rate. Say two companies each need a bond for a construction project worth $500,000. The first company has a good credit history, strong financial position, and a track record of completing similar jobs to clients’ satisfaction. This company might receive a rate of 1% from the surety, which means they would only pay $5,000 for coverage. The second company has limited working capital and has a reputation for not completing jobs on time and producing lower quality work. This company might receive a rate of 6%, which means they would pay $30,000 for the same bond.
Factors That Affect Surety Bond Rates
Each surety looks at a variety of factors to evaluate the risk level of a bond when setting rates, and no one surety will weigh each factor equally. In general, however, rates are a reflection of the type and amount of the bond, your personal and business credit and finances, your business’s track record, and several other variables. Specific factors that a surety may consider are explained below.
Different types of bonds have different risk levels and obligee expectations, and sureties set rates accordingly. For instance, court bonds like a probate bond or commercial bonds like a notary bond are considered low risk and may have rates of 1% or less. In contrast, something like a contract performance bond for a construction project may be considered riskier, especially if the job requires specialized knowledge or expertise to complete. In such a case, the construction company may need to pay a higher rate to obtain the bond.
Bond amount could also impact your rates, as sureties want to account for the possibility that they could end up paying a large sum for any claims and having to collect that amount from the principal. All else being equal, a principal may be considered safer to cover—and therefore pay lower rates—on a $30,000 bond than a $300,000 bond because the financial risk to the surety is lower and the principal will have an easier time repaying if needed.
When setting rates for a surety bond, the credit history for businesses and certain individuals (usually those with a significant ownership stake in the business) will be one of the most important factors the surety considers. Like with any loan, credit history will be taken as an indication of your willingness, ability, and commitment to paying off any debts. If the surety considers you less likely to repay them if they pay out a claim, you will likely encounter a higher rate on the bond. You can get a copy of your business’s credit report from companies like Experian or D&B.
Because surety bonds can put a significant amount of money at stake, sureties want to know that principals have the financial wherewithal to pay the bond amount if needed. One of the most important factors the surety will look at is working capital, or the principal’s assets minus their short term liabilities. This measure gives the surety a quick indication of the principal’s liquidity and ability to meet short-term financial obligations. Companies in a strong financial position will usually pay lower rates.
For contract bonds, the surety will be interested in the principal’s capacity to meet the terms of the contract. This may involve looking at the firm’s human and financial resources, technical expertise, and other projects currently underway. But even if a company currently appears capable of completing the work as agreed, one of the best reassurances for sureties is a track record of having successfully completed similar work in the past. Companies without that track record in the industry may be considered riskier and pay more for surety bonds as a result.
If clients, subcontractors, or other individuals have filed many claims against you in the past, the surety might take it as a sign that your work is not of high quality or that you are unreliable in meeting your obligations. These attributes would seem to increase the likelihood that more claims will occur in the future. However, the number of claims may be related to the type of bonds you have or the industry you work in, and sureties should consider that context. Regardless, surety companies will evaluate your claims history and will prefer to offer lower rates for those who have avoided claims in the past.
Reputation & Character
Sureties want to deal with trustworthy principals because those businesses or individuals are more likely to act responsibly, meet their obligations, avoid claims, and pay what they owe if there is a claim. And while sureties can get a sense of a business’s trustworthiness from their credit, claims history, or industry experience, they may also look for other, more intangible signs of a business’s reputation and character. Factors like communicating well, having long-tenured management, or paying subcontractors in a timely manner can all indicate that a business is reliable and worthy of paying a lower rate.
Finding the Best Surety Bond Companies
The surety bond market includes small providers, multinational insurers, and everything in between. With the number of companies who provide sureties, the variety of surety bond types available, and the different state regulations around sureties, it can be hard to hone in on the best surety bond companies for your industry and location.
Luckily, there are professionals known as surety agents or brokers who understand different types of surety bonds and are familiar with surety bond companies’ offerings and requirements. They can help you find the best options for your needs and give you comparative information across providers. Today, many brokers operate online, which makes it easier than ever to input information and get leads on potential surety bond options, but you can also look for a local broker who may be more familiar with surety bond requirements in your jurisdiction.
Additionally, if you are struggling to secure a surety bond, the federal government’s Small Business Administration will help businesses connect with authorized sureties and guarantee bonds. This is useful for smaller businesses who, due to their size or other factors, may struggle to meet the criteria for other sureties.
While a surety bond agent or broker will be able to answer many questions for you and connect you with different providers based on your needs, you should do some research independently to know what you are looking for in a surety bond. In the next section we will detail some of the most important factors for you to look out for when comparing companies.
Comparing Surety Bond Companies
Once you have potential surety bond providers in front of you, a few key factors should drive your ultimate selection. These include the bond types and limits available through the surety, the cost of bonds offered, the surety’s reputation and financial strength, and the process for reporting claims. Each of these are explained in more detail below.
Bond Types & Limits
Because there are many different types of surety bonds, and regulations around sureties can vary by state (especially for commercial bonds, which are tied up in states’ different licensing standards), you should check to be sure that a potential provider offers the right type of coverage for your industry in the jurisdiction where you operate.
You should also be aware of how much coverage sureties are willing to offer you. For instance, some smaller surety providers may not offer a limit high enough to cover the value of a major construction contract or could decline to cover a business at a higher dollar amount if they perceive that business to be on the riskier side.
One of the main factors that business owners will be examining when seeking a surety bond is how much they will end up paying in premiums and rates. Because sureties weigh factors differently when calculating the rate to offer on a bond, you will likely find that some companies may offer more competitive rates than others even with the same bond type and amount. You should look for quotes from multiple providers to make sure that you are obtaining the best possible rates for your needs.
Company Reputation & Financial Strength
When working with any risk management company like an insurer or surety, the company’s reputation and financial strength are important factors to consider. While the cost of a surety claim will ultimately be the principal’s responsibility, having a surety with strong financial resources and a good track record can help reassure obligees that they will be compensated if an issue arises.
Two great factors to check regarding company reputation and financial strength are the surety’s Better Business Bureau score and credit ratings, respectively. The BBB evaluates how fair and ethical companies are in responding to customer concerns, while rating agencies like AM Best, Moody’s, and Standard and Poor’s evaluate how likely a company is to meet its financial obligations.
When an obligee or other party makes a claim against you, the surety you work with will typically evaluate the claim before paying any amount of the bond to make sure that the claim has merit. For you as the principal, this is important because the surety can save you money if they determine that a claim is frivolous or does not have evidence behind it. As you compare sureties, you want to look for companies who make it easy to report claims as they arise, are transparent and communicative throughout the claims process, and will evaluate claims quickly but fairly.
Best Surety Bond Companies Overall
The Hartford (Best Overall)
Bond Types & Limits
The Hartford offers a variety of commercial, contract, and other bonds, appropriate for businesses in many different industries or use cases. Its contract bond business includes both construction-specific bond products and other commercial contracts, so its bond offerings can meet a variety of customer needs.
The Hartford is the sixth largest surety provider in the U.S., with ample financial resources behind it. As a result, The Hartford can offer bonding capacity up to $1 billion on both commercial and contract bonds. This is ample coverage for almost any business in the market, and while many of The Hartford’s surety products are more oriented toward midsize or larger businesses—especially for construction bonds—customers of any size will find that The Hartford can deliver appropriate amounts of surety coverage for their needs.
To learn more about the exact cost of The Hartford’s surety bond offerings for your business, you will need to work through a surety bond agent. However, The Hartford’s website allows users to quickly find surety bond agents in their area who partner with The Hartford. Agents can easily generate bond quotes and details through The Hartford’s agent-facing online platform.
Company Reputation & Financial Strength
The Hartford comes out well on measures of company reputation and financial strength. The Better Business Bureau gives The Hartford an A+ rating, while its scores from the major credit agencies are an A+ from Standard & Poor’s, an A+ from AM Best, and an A1 from Moody’s. These are all excellent ratings and indicate that The Hartford is a highly reliable surety provider.
The Hartford’s claims reporting tools make it straightforward to report claims by phone or online. Once a claim has been initiated, The Hartford offers an online claims portal which allows users to track claims progress. To process claims when they occur, The Hartford has a collaborative approach with the bond underwriters, claims professionals, and legal professionals to investigate and resolve claims in a fair manner.
The Hartford’s surety offerings are comprehensive, well-rounded, and appropriate for businesses of many sizes and industries. For these reasons, The Hartford is our choice for the best overall surety bond company.
Jet Insurance Company (Best for Small Business)
Bond Types & Limits
Jet Insurance Company is licensed in 44 states and Washington, D.C. with pending applications to write business in the remaining states. Jet’s focus is on a wide variety of license, probate, and permit bonds required by states, counties, cities, and courts. Jet prides itself on making surety easily accessible and obtainable for smaller businesses.
Jet’s direct distribution model means reduced surety costs for the principal. By eliminating brokers and agents, Jet doesn’t have to pay large commissions to middlemen. Additionally, Jet never charges fees on top of the bond’s cost.
License and permit bonds, where the premiums are small, often get overlooked by large insurance companies and grouped into large classes with generic pricing groups. Jet’s research team and underwriters work diligently through most bond requirements to develop a rate structure specific to that bond.
Jet Insurance Company also provides a convenient monthly payment option in addition to traditional annual terms. The monthly option gives contractors the flexibility to pay a low monthly premium and cancel whenever they please.
Company Reputation & Financial Strength
Established in 2018, Jet Insurance Company is fairly new to the surety industry. However, Jet’s team comes with several years of surety experience. With Jet’s experience and early strong showing, AM Best has afforded the company a Financial Strength Rating of B++ (Good) and a Long-Term Issuer of Credit Rating of bbb+ (Good). AM Best describes Jet’s balance sheet strength as strong.
This rating also takes into consideration Jet’s level of risk-adjusted capitalization, measured by Best’s Capital Adequacy Ratio (BCAR), which analyzes the company’s targeted business plan to write nearly all commercial surety bond types with a smaller portion attributed to probate, fidelity, and contract.
Jet Insurance Company’s AM Best rating will improve in the future, with increased written business and a diversified business profile. As the financial strength improves, Jet will begin to offer larger contract bonds for its contractor clientele.
While other insurance companies often only work with the customer in case of a bond claim (utilizing agents for bond sales), Jet works directly with the customer from bond purchase to bond claims and everything in between.
Jet Insurance Company reviews bond claims in-house and is developing a streamlined process to handle even the smallest bond claims. Jet’s management team believes that creating an efficient process for all claim handling can lead to more interaction between the damaged public and contractors, leading to fewer payouts and lower costs for the surety bonds. Claim information and documentation are currently submitted via email to [email protected].
Jet Insurance Company’s platform caters to small and new businesses and can best address a contractor’s required license, registration, and permit bonds. Jet’s focus is on each regulatory requirement to ensure contractors can purchase their surety bond online in minutes and to provide savings on even the smallest of bonding needs. For these reasons, we recommend Jet as the best surety company for small business.
Travelers (Runner-Up; Best for Small Contractors)
Bond Types & Limits
Travelers is one of the major players in the surety market, providing a wide variety of commercial and contract bonds across different industries. Travelers offers some of the highest bonding capacity of any surety in the marketplace, so Travelers can service businesses of any size.
One of Travelers’ main strengths is in construction bonds, especially for smaller contractors. As one of the largest surety companies in the marketplace, Travelers has financial resources to back major public works and construction projects. At the other end of the spectrum, Travelers has a long history in the market for small contractors, with a Construction Services Express program for construction entities doing jobs up to $500,000 in value. Travelers also offers innovative products like subcontractor performance bonds and bonds with dispute resolution procedures included to help ensure that jobs stay on track even when a claim arises.
Travelers recommends finding an independent surety agent near you to obtain information and quotes about their surety bond offerings. On some products, once a request for a surety bond quote has been submitted, Travelers says that they will turn around a response within 48 hours. This is a downside compared to some other providers who have tools that produce quotes more quickly and may even allow customers to get cost estimates without working through an agent.
Company Reputation & Financial Strength
Travelers’ financial strength ratings are among the highest of any surety. AM Best gives Travelers its highest possible rating, A++, while Standard & Poor’s and Moody’s offer high grades of AA and Aa2, respectively. Travelers is also well-regarded based on ratings from the Better Business Bureau, which lists Travelers as an A business.
Travelers supports claims reporting 24/7 by email, fax, phone, or standard mail. Once a claim has been filed, Travelers has a team of claims professionals to investigate and resolve claims, and great online tools for customers to follow the progress of open claims.
One unique advantage of Travelers is the variety of additional services it offers to surety customers to prevent and resolve claims. For example, Travelers Risk Control provides risk management services and products to help proactively identify potential risks. When challenges do arise, Travelers offers certain types of performance bonds that incorporate dispute resolution services to quickly resolve issues with an obligee or subcontractor. Travelers’ commitment to preventing claims and resolving them quickly is important for keeping jobs on track, instead of delaying them further with time-consuming claim resolution processes.
Travelers offers a well-rounded package for surety bonds without any glaring downsides, which makes it a good choice for many businesses and our pick for overall runner-up. Additionally, Travelers is a good choice for small contractors due to its customized services for emerging contracting businesses.
Liberty Mutual (Best for Bad Credit)
Bond Types & Limits
Because of its resources and extensive reach across the U.S., Liberty Mutual is a solid option for almost any business seeking surety bonds, regardless of their industry, size, or particular bond requirements. Liberty Mutual’s bond types include a variety of commercial, contract, court, and other bonds. In its commercial bond services, Liberty Mutual bonds Fortune 1000 companies and can offer bond limits up to or in some cases beyond $750 million; however, Liberty Mutual also serves individuals or small businesses with commercial bonds up to $5 million. For contract bonds, Liberty Mutual offers bonds up to $25 million for smaller or midsize businesses, and some of their options do not even require financial statements.
As mentioned above, Liberty Mutual offers a variety of bond types for businesses of all sizes, so the specific costs you pay for a surety bond will vary depending on your unique situation and needs. One downside of Liberty Mutual is that you will need to work through a surety agent or broker to access information about rates, but Liberty Mutual does have an easy online platform for agents to quickly calculate quotes.
One noteworthy strength of Liberty Mutual is that it offers both standard surety bonds and alternative models for emerging or struggling businesses through its Vista program. Geared toward businesses with bad credit, these tools may involve using different forms of collateral or managing funds on behalf of the business. Liberty Mutual is additionally a trusted partner for the Small Business Administration’s surety guaranty program. Together, these indicate Liberty Mutual’s willingness and ability to create access to surety bonds even when a business’s financial picture is not ideal.
Company Reputation & Financial Strength
Liberty Mutual is a leader in the surety bond industry both in the U.S. and globally as one of the largest surety bond writers in the market. With such a prominent position in the market, Liberty Mutual has nearly unmatched financial resources, and the major ratings agencies affirm Liberty Mutual’s financial strength with an A2 rating from Moody’s, an A rating from AM Best, and an A rating from Standard & Poor’s.
Additionally, Liberty Mutual receives an A+ from the Better Business Bureau and has been accredited with the BBB since 1931. This means that Liberty Mutual meets the BBB’s highest standards for honest, ethical business practices.
Liberty Mutual makes it fairly easy to initiate a surety claim, accepting claims via an online form, phone, email, or fax. At that point, Liberty Mutual’s claims team, which includes a collection of experienced lawyers, accountants, and risk managers, work to quickly evaluate and resolve surety claims.
Additionally, Liberty Mutual’s claims experts are an in-house team rather than a third party, which is not a universal practice in the surety market. This is an advantage for Liberty Mutual because their underwriters collaborate with the claims teams and other experts to not only respond to claims as they arise but also intervene in disputes to prevent claims from being filed in the first place.
Liberty Mutual offers bond solutions appropriate for all types and sizes of business, a great reputation with top-notch financial strength, and in-house claims support, among other benefits. However, one of Liberty Mutual’s unique strengths is its support for alternative surety bonds. This allows Liberty Mutual to offer the best surety bonds for businesses with bad credit or other financial challenges.
Zurich (Best for Large Contractors)
Bond Types & Limits
Zurich is one of the largest surety bond companies in the market and the longest continuously operating surety provider in the U.S., having gotten started in the U.S. in 1890. Zurich has deep expertise and deep resources which gives it the capability to back surety bonds of almost any type or amount. However, potential customers should know that most of Zurich’s surety business is oriented toward large, highly qualified corporate clients and has particularly strong interest in providing contract bonds for major construction and public works projects. Zurich offers surety capacities of more than $2 billion for some clients, and they boast that many of their commercial and contract clients are among the largest in their industries.
Because Zurich deals with larger, stable, highly qualified businesses, its premium rates are usually relatively low by percentage. As always, specific terms of a surety bond with Zurich will depend on your business’s unique needs.
Compared to its competitors, one nice attribute of Zurich’s surety business is the ease of obtaining a quote and managing bonds as a customer. Zurich’s online platform Surety Express can be used by customers, agents, brokers, and others to generate quotes, manage payments, and modify existing bonds.
Company Reputation & Financial Strength
Zurich is one of the best-regarded providers in the surety bond market. Zurich is a Better Business Bureau-accredited organization, and the BBB offers Zurich an A+ grade for its dealings with customers. In terms of financial strength, Zurich receives ratings of AA from Standard & Poor’s, Aa3 from Moody’s, and A+ from AM Best, all of which are among the highest possible ratings on each respective scale.
Zurich has a variety of channels available to initiate and manage claims, including online and mobile forms, email, standard mail, toll-free phone, and fax. When a claim is filed, Zurich refers it to members of its in-house claims team to manage the process. When evaluating claims, Zurich distinguishes itself in keeping customers informed, including access to online tools and reports and a proactive approach to communication from its claims team.
While Zurich’s target market may not be a fit for smaller or even many midsize businesses, its long track record of success makes it a great choice for commercial bonds for larger businesses and contract bonds on major construction projects. Zurich is our choice for the best surety bond company for large contractors.
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