A surety bond is a three-party contract between (1) the principal, (2) the obligee, and (3) the surety that guarantees compensation if the principal fails to fulfill their obligations to the obligee. The principal is a company that is hired by another business or individual. The obligee is the business or individual that hired the principal. The surety is the company that sells the surety bonds. A good example of this is the contractor bond. If you were a contractor (the principal), depending on the state, you would need to buy a bond from a surety company (the surety) to get your license. That bond guarantees to your client (the obligee) that the project will be completed or they will be compensated for any damages if something were to go wrong.
Businesses typically buy surety bonds either because the bond is required by law or that the bond is a necessary step to obtaining a trade license, such as an auto dealer license or contractor license. To that end, you should check local regulation to ensure that you’re getting the right bond based on your individual business needs.
While most bonds are purchased to satisfy a regulation requirement, there are some bonds, such as a business service bond, that are purchased by businesses to build trust with their customers.
To understand the best options for getting a surety bond, we must first explain the parties involved in buying and selling a surety bond. Like insurance, there are two parties involved in surety bonds: surety agencies and surety carriers. Surety carriers (also known as surety companies) are insurance companies that sell surety bonds. With their large teams of underwriters and claim specialists, surety carriers set the prices of surety bonds and handle claims when they arise. On the other hand, surety agencies act as a liaison between customers and multiple surety carriers. Surety agencies are also sometimes known as surety brokers. A surety agency is typically contracted with multiple surety companies to sell surety bonds and acts in the interest of the customer. The price of a surety bond can vary widely across different surety carriers, so the surety agency’s main value add to customers is that they can shop around on the customer’s behalf to get them the best prices.
Broadly speaking, there are three options available for buying surety bonds: a local insurance agent, surety carriers or a surety agency. We’ll explore each option below and go through their pros and cons.
Your first option could be to buy from your local insurance agent who sold you your car or home insurance.
The benefit of working with your local insurance agent is that you can buy your insurance and surety bond at the same place, which probably makes your life easier. Furthermore, insurance agents focus more on customer service than that of insurance companies/carriers, so you’ll likely get a more personalized experience compared to buying directly from a carrier.
There are two drawbacks to working with your local insurance agent to get a surety bond. First off, your local agent may not have the necessary surety expertise to help get you the right bond. There are over 1000 types of surety bonds in the US, therefore it is unlikely that your local agent will be familiar with the bond you need.
Furthermore, your local agent may not be able to give you the best price because he/she is not appointed with specialized surety carriers that give the best price for surety bonds. From our experience, while many large insurance companies offer surety bonds, it is not their main focus, as surety bonds premiums make up less than 1% of total insurance premiums in the US. Surety specialized carriers like Merchant often beat out larger carriers when it comes to providing the best prices for surety bonds. Surety carriers have minimum sales volume that they require their agent partners to meet, and since your local agent does not specialize in surety bonds, it’s unlikely that he/she will meet the minimum sales volume threshold to be appointed with the necessary surety carriers to get you the best price.
Your second option is to buy directly from an insurance company that sells surety bonds. These companies are also known as surety carriers. It’s important to note here that many surety carriers actually don’t sell to customers directly and leave the “distribution” side of the business to agencies so that they can specialize in pricing and underwriting. There are less than a handful of surety carriers that sell to consumers directly in the US. For those that do, it’s often a secondary focus for them as agencies generate the majority of the volume for these carriers.
The main benefit of buying from a surety carrier is that you might be able to get a cheaper quote, since buying from a carrier directly cuts out the surety agency as a middleman. Agency commissions range from 15%-30%, so there is potential for savings there.
However, there are some drawbacks associated with buying from surety carriers. These include: poor customer service, limited bond availability, and inconsistent pricing.
Surety carriers are organizations that specialize first and foremost in underwriting, the process of determining how much to charge for a bond, and not customer service/distribution. This is because underwriting is the primary moneymaker for surety carriers. Surety carriers make money by ensuring that their overall premiums exceed their losses, and this responsibility falls on their underwriters. Therefore, it’s likely that a surety carrier will have poor customer service relative to surety agencies whose main value proposition to customers is price comparison and personalized customer service.
The second drawback is limited bond availability. There are over 1000 types of surety bonds in the US, we’ve not seen a single carrier offer every type of bond, even amongst the most popular ones. This is because underwriting for bonds is a time consuming and laborious task, and surety carriers have limited resources, therefore they can only offer so many bonds at once.
The third drawback is inconsistent pricing. By going with a surety carrier, there’s a real chance that the carrier can give you the best price by cutting out the middleman, but there’s also chance you might get a non-competitive price without knowing because the carrier does not specialize in that type of bond - prices for the same bond can often vary widely across different surety carriers.
Your last option is to get your surety bond through a specialized surety agency. A surety agency, like its name suggests, is an insurance agent that specializes in surety bonds. The agency usually is partnered with multiple surety carriers to provide quotes for the customer.
There are two main benefits to working with a specialized surety agency to get your surety bond. The first is great customer service that is specialized in surety bonds. Surety agencies focus solely on surety bonds and not other types of insurance. This makes them more knowledgeable about how to get a surety bond than a general insurance agent. Furthermore, compared to the average surety carrier that sells direct to consumers, the average surety agency offers better customer service since distribution is their main focus.
The second benefit is that surety agencies often get the best prices for bonds due to price comparison. Because the agency’s entire purpose is surety bonds, they have the resources and time to focus on researching different carriers and different prices. As previously mentioned, a single bond can have very different prices across surety carriers (there are 450 in the US), therefore price comparison is super important when it comes to buying a surety bond. , Lastly, the agency’s focus on customer service also means that customers can usually get quotes faster than they would from a surety carrier.
The main drawback to getting a surety bond through a surety agency is the same as getting it through a local agent - agency commission. Agencies’’ commissions range from 15% to 30%, and a portion of this cost gets passed to the consumer in the form of higher premiums.
As a summary for the options described above, we came up with the scorecard below. We scored each option based on three criteria that we think were important to buying surety: (1) bond availability, (2) bond prices, and (3) customer service.
Scoring Card Range
Comparing all three options above, surety agencies are by far the best option for purchasing a surety bond. They are more specialized than a local insurance agent and their incentives are more aligned customers compared to that of surety carriers.
Surety agencies offer the largest variety of surety bonds compared to local insurance agents and carriers. This is because a surety agency is typically contracted with multiple surety carriers, which gives them access to a wider range of bonds In comparison, surety carriers typically do not partner other surety carriers and only sell what they offer. A local agent may be appointed with multiple carriers, but since the carriers are not surety specialized, the bond selection may also be limited.
Surety agencies also typically have the best prices. Good surety agencies know the strengths and weaknesses of each surety carrier, so they can find you the best prices in an efficient manner. The discount in price you can get by working with a good surety agency often far outweighs the commission that the surety agency receives. This is especially true for low credit individuals or those looking for bonds with higher bond amounts. The more expensive the bond, the more it makes sense to hire a surety broker. For surety carriers, they often advertise that they cut out the middleman, but there is only one option for price, which is the price that the surety carrier provides. For local insurance agents, because surety bonds are often not their focus and because they can only work with a few carriers, they do not have the time and knowledge to find the best prices for you.
Another area that a surety agency excels in is customer service and surety expertise. These establishments exist to help customers understand surety bonds and find bonds that best fit your needs. This means that surety agencies are accessible for questions and more willing to commit their time to finding the best deal for you. Surety carriers specialize in underwriting and often neglect customer service. The incentives of a surety carrier are also misaligned - their goal is to sell their bond to you, rather than help you find the best price. Local insurance agents provide good customer service, but their service may not be the most helpful since they don’t specialize in surety bonds.
With all three criteria in mind, specialized surety agencies are by far the best option for buying surety bonds.
Now that we’ve discussed options for purchasing surety bonds, let’s go through the general steps of getting a surety bond. While you can buy from physical agencies, most surety bonds are simple enough to be purchased online, so we recommend you go through an online agency to keep things simple. With just a few simple steps, you can get your bond within a few hours:
We looked at dozens of surety agencies and picked the top 5 surety agencies by looking for companies that excel in a given category. Similar to other types of insurance, the surety agency that is best for your friend may not be the one that is best for you. For example, some individuals might care about getting the best price while others may care about getting the best customer service possible. Here are the top 5 picks to consider when it comes to choosing a surety agency.
Started in 1965, Bond Express is one of the longest tenured surety agencies in the US. The agency offers a wide variety of bonds and offers instant checkout for many pre-approved bonds. Bond Express has a lightning fast checkout process for pre-approved bonds. You can purchase and receive a pre-approved bond from them within the hour. Their free 24 hour quote procedure also guarantees that most customers will receive a free quote within 24 hours.
With over 40 employees, SuretyBonds.com is one of the largest online surety agencies in the US. They operate in over 50 states and write bonds of all types. Track record matters when it comes to surety and the company has maintained a strong record on Better Business Bureau (BBB), having received an A+ rating since 2011. With their large team of surety professionals, SuretyBonds.com is known for providing great customer service.
The top ranked surety company by Investopedia in 2021, 2022 and 2023, SuretyBondsDirect is a great option for purchasing bonds of all manner. They also have one of the best navigation systems for finding a bond, allowing users to search for bonds via state and also bond name. If you can’t find a bond anywhere else, you’re likely to find it on SuretyBondsDirect.
Started in 2002, Viking Bond Service offers surety services in all 50 states. One thing that sets Viking apart from other agencies is their bad credit program. For individuals with less-than-perfect credit scores, securing a surety bond can be a challenging process. Viking’s bad credit program is perfect for these scenarios.
Through segmenting the strengths and weaknesses of various surety carriers, SuretyNow provides the lowest price for purchasing surety bonds. We are also the only agency in the industry to offer quote matching.If you bring us proof of a cheaper quote from a competitor, we guarantee you that we’ll match it. We’re also the only surety agency to operate 7 days a week. We know that most bond seekers are busy during the weekdays, so our phone lines are open on the weekends.
There are many ways and places to get a surety bond, but we recommend that you go through a surety agency as opposed to a surety carrier or local insurance agent. Surety agencies provide quick and informative customer service while also providing you with the lowest rates they can find.