Surety bonds
Coverwatch places surety bonds for contractors and licensed trades that have to guarantee a license, a bid, or a finished job. We structure the bond to the obligee's exact wording and back it with a surety that issues fast, not just clear a checklist.
- Premium ~1–3% a yearly fee on the bond's penal sum
- Three parties principal, obligee, surety
- Indemnity required you repay the surety for any claim it pays
At a glance
- What it covers
- Guarantees to the obligee that you will perform the obligation, or that they get paid if you do not.
- What it doesn't
- It is not protection for you. The surety can recover from you everything it pays out on a claim.
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What is a surety bond and what does it cover?
A surety bond is a three-party guarantee that you (the principal) will meet a legal or contractual obligation owed to an obligee. If you default, the surety pays the obligee up to the penal sum, then recovers that money from you. A bond protects the obligee rather than you, and it is a guarantee instead of insurance.
How we get you covered
We take surety bonds to 60+ markets, build it to fit your business, and keep it compliant.
Read your risk
We map what could actually go wrong in your operation, where a claim would come from, and who would bring it.
Shop 60+ markets
We take your risk to the carriers that know your class and make them compete on price and terms.
Build the endorsements
We add the endorsement wording that decides whether the policy responds to a claim, beyond the base form.
Keep you compliant
We handle the COIs, additional-insured certs, and renewals, so you are never the one chasing paperwork.
Who needs surety bonds
Contractors and licensed trades carry surety bonds because a license board, a public owner, or a state agency requires a financial guarantee before they can work.
Contractors
License and permit bonds to hold a trade license, plus bid, performance, and payment bonds to win and complete construction contracts.
General contractors
On commercial and public projects the prime carries the performance and payment bonds and indemnifies the surety.
Electricians
A state contractor license bond is usually required to hold the license. Performance bonds apply on larger bonded jobs.
Plumbers
Most states and municipalities require a license and permit bond to pull permits and hold the trade license.
HVAC contractors
A license bond to operate, plus performance and payment bonds when working as a sub or prime on bonded construction.
Roofing contractors
License bonds apply in many states, and performance and payment bonds come into play on commercial reroofs and public work.
Motor vehicle dealer bonds required by the state DMV before a dealer can be licensed to sell vehicles.
What's covered, and what isn't
In the policy
License and permit bonds
Required to hold a trade or business license. The bond guarantees you will follow the code and statutes governing your work. If you violate them and harm a consumer, the obligee or that consumer can claim against the bond, and you repay the surety.
Bid bonds
Filed with a bid on a construction contract. The bond guarantees that if you win, you will sign the contract and post the performance bond. If you back out, the surety pays the obligee the difference to the next bidder, then recovers it from you.
Performance bonds
Guarantees you will complete a contract to its terms. If you default, the surety steps in to finish the job, pay another contractor to finish, or pay the obligee up to the penal sum. The surety then seeks full indemnity from you.
Payment bonds
Guarantees your subcontractors and suppliers get paid on a project. If you do not pay them, they claim against your payment bond. The surety pays the valid claims and recovers the amount from you under the indemnity agreement.
Court and fiduciary bonds
Guarantees to a court or beneficiary that a fiduciary, such as an executor, guardian, or appointed party, will perform their duties honestly. A loss to the protected party is paid by the surety, then charged back to the bonded principal.
Not in the policy
Your own liability for injuries or property damage
If your crew hurts a bystander or damages a client's property, that is a third-party liability claim. A surety bond never pays for your negligence or accidents on the job, so you carry general liability alongside the bond.
Covered by General Liability
Damage to the building under construction
A bond does not insure the structure you are building against fire, wind, or theft while work is underway. Physical loss to the project sits with builders risk, which protects the work itself rather than guaranteeing your performance.
Covered by Builders Risk
Your loss when you pay a claim
Every dollar the surety pays an obligee, you repay. The bond is a guarantee for the obligee's benefit, so there is no coverage that absorbs the loss on your side. That is the core difference from insurance.
Defaults you cause on purpose
A surety that pays a claim arising from your fraud, willful abandonment, or diversion of contract funds will pursue you aggressively for full reimbursement plus its costs. Indemnity is broadest exactly where the principal is at fault.
Claims surety bonds pays
Contractor defaults and the surety completes the job
A general contractor abandons a bonded project halfway through. The owner declares default, and the surety hires a replacement contractor to finish under the performance bond. The surety pays the completion cost up to the penal sum, then sues the original contractor and its owners for full indemnity.
$250K–$5M+
License bond claim from a consumer
A homeowner pays a licensed contractor a deposit, the contractor never performs, and the homeowner files against the contractor's license and permit bond. The surety pays the valid claim up to the bond amount, then demands repayment from the contractor under the indemnity agreement.
$10K–$50K
Bid bond forfeiture
A contractor wins a public bid, then realizes the number was too low and refuses to sign the contract. The owner re-awards to the next bidder at a higher price. The surety pays the owner that price difference under the bid bond, then recovers it from the contractor.
$25K–$250K
Unpaid subcontractor files on the payment bond
A subcontractor finishes its scope but the prime contractor never pays. The sub files against the payment bond. The surety pays the valid amount owed, then collects from the prime under indemnity, often with interest and the surety's own legal costs added.
$15K–$500K
Ranges are typical claim and completion bands for these bond types, not a quote. A bond claim becomes your debt to the surety; actual exposure depends on the penal sum and the contract.
How much coverage you need
You do not pick a bond limit the way you pick an insurance limit. The penal sum is dictated by whoever requires the bond, and the only number you control is whether a surety will back you for it.
- The obligee sets the penal sum
- A state license board, a project owner, or a statute fixes the bond amount. A contractor license bond might be $15,000 to $25,000 by state, while a federal payment bond runs 100 percent of the contract price under the Miller Act. You bond to their number.
- Your credit and financials set the rate and capacity
- The surety underwrites you like a lender. Strong personal credit, a clean work history, and solid financial statements earn premiums near 1 percent and larger bonding capacity. Weak credit pushes the rate up and the single-bond and aggregate limits down.
- Bond type shifts the price
- Simple license and permit bonds are cheap and often issued on credit alone. Performance and payment bonds on large contracts cost more and require full financial review, because the surety is guaranteeing completion of real construction work.
- Federal projects (Miller Act)
- 100% of contract price
- State and local projects (Little Miller Acts)
- Often 100% of contract price
- State contractor license boards
- ~$10K–$25K
- State motor vehicle dealer DMVs
- ~$25K–$75K
On covered federal construction work, the Miller Act (40 U.S.C. 3131) requires both a performance bond and a payment bond, each typically written at 100 percent of the contract price before the job can proceed.
Most states mirror the federal rule for public works above a state-set threshold, requiring performance and payment bonds before a public contract is awarded.
Many states require a contractor license and permit bond to hold a trade license. The amount varies by state and municipality; California, for example, sets a $25,000 contractor license bond.
Most states require a motor vehicle dealer bond to be licensed to sell vehicles. Texas, Illinois, and California require $50,000 for standard dealers; amounts vary by state and dealer type.
- Penal sum
- Set by the obligee
- Premium
- ~1–3% of penal sum
- Indemnity
- Up to 100% repayment
- Aggregate / single bond limit
- Your bonding capacity
The maximum the surety will ever pay on the bond. Whoever requires the bond fixes the amount. A state might set a $50,000 license bond, while the Miller Act sets a payment bond at 100% of the federal contract price. It caps what the surety can pay out.
What you actually pay for the bond, charged as a percentage of the penal sum each year or per project. Strong credit lands near the bottom of the range, and weaker credit or specialty bonds run higher. You pay it for the guarantee and never get it back.
Your obligation, signed in the general indemnity agreement, to repay the surety every dollar it pays on a claim plus its costs. Unlike an insurance deductible, this can be the entire penal sum, and owners often sign personal indemnity.
The total bonded work a surety will back at once, and the largest single bond it will write for you. Your financials and work history set it, and it caps how much bonded work you can pursue at any one time.
Endorsements that close the gaps
The base form is the start. These add-ons are where the policy gets built to fit your business.
AIA performance and payment bond forms
AIA A312The standard industry bond forms used on most private commercial construction. Many owners require the A312 wording specifically, so confirm the obligee accepts the surety's form before you sign the contract.
Maintenance / warranty bond
Extends the guarantee past completion to cover defects that surface during a warranty period, often one to two years. Public owners frequently require it on top of the performance bond.
Dual obligee rider
Names a second protected party, such as a lender or a higher-tier contractor, as an additional obligee on the bond. Required when more than one party needs to be able to claim against the same performance bond.
SBA Surety Bond Guarantee
The SBA backs 80 to 90 percent of a qualifying bond so a surety will write a contractor it would otherwise decline. This is the lever for newer or thinly capitalized contractors who cannot yet get bonding on their own credit.
Questions buyers actually ask
No. A surety bond is a three-party guarantee rather than insurance. Insurance is a two-party contract where the carrier pays you when you suffer a covered loss. A surety bond involves you (the principal), the obligee who requires it, and the surety that backs you. If you default, the surety pays the obligee, then recovers every dollar from you under the indemnity agreement. A bond protects the obligee, never you. You buy it because a license board, a court, or a project owner requires a financial guarantee standing behind your obligation.
The penal sum is the maximum amount the surety will ever pay on the bond. The obligee sets it, whether that is a state board, a court, or a project owner. A state might fix a contractor license bond at $25,000, while the Miller Act sets a federal payment bond at 100 percent of the contract price. The penal sum is the ceiling on a claim, separate from your cost. You pay a premium that is a small percentage of the penal sum, typically around 1 to 3 percent. Because of indemnity, the penal sum can also become the amount you owe the surety if a full claim is paid.
You pay a premium, usually around 1 to 3 percent of the bond's penal sum, charged annually or per project. A $50,000 license bond at 2 percent costs about $1,000 a year. The rate depends on your personal credit, financial statements, and work history, because a surety underwrites you like a lender. Strong credit lands near the bottom of the range, and simple license and permit bonds are often issued on credit alone. Performance and payment bonds on large contracts cost more and require full financial review. The premium is what you pay for the guarantee, and you do not get it back.
The surety investigates the claim. If it is valid, the surety pays the obligee or claimant up to the penal sum. It then comes back to you for full repayment under the general indemnity agreement you signed. That repayment can include the claim amount plus the surety's legal and investigation costs. Because most indemnity agreements include personal indemnity, the surety can pursue your business assets and often your personal assets. A paid bond claim also damages your bonding capacity, making future bonds harder and more expensive to obtain. A paid claim is a serious credit event.
Bid bonds, performance bonds, payment bonds, and maintenance bonds. A bid bond guarantees that if you win a contract you will sign it and post the performance bond. A performance bond guarantees you will complete the work to the contract terms. A payment bond guarantees your subcontractors and suppliers get paid. A maintenance bond, sometimes called a warranty bond, guarantees the work against defects for a set period after completion. On federal projects above $150,000, the Miller Act requires both a performance bond and a payment bond, each typically at 100 percent of the contract price.
No. A surety bond does not cover your own liability at all. If your crew injures a bystander or damages a client's property, general liability insurance handles that third-party claim. A bond only guarantees that you will perform a specific obligation, such as completing a contract or following the rules of your license. It also does not insure the building you are constructing against fire, wind, or theft, which is what builders risk does. Contractors carry bonds and liability insurance together because they protect entirely different things.
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