Surety Bond / Contractor's Bond
Definition. A Surety Bond is NOT insurance — it's a financial guarantee that you'll complete contracted work and comply with regulations. Required for licensing in many trades.
Also known as: Performance Bond, License Bond, Contractor Bond
The surety company guarantees performance to the customer/state. If you fail, the surety pays out and seeks reimbursement from you personally. Different from insurance: insurance protects YOU; a bond protects the third party. Bond premium is typically 1-3% of bond amount per year, credit-driven.
Example
Plumber license requires $10,000 contractor's bond. Failed inspection leads state to claim against the bond; surety pays the customer $7,500 then seeks $7,500 reimbursement from the plumber.
Sources cited
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Reviewed by California-licensed Property & Casualty insurance agent
Jason Wootton (CA License #0I94454). Not insurance advice, an individual recommendation, or a solicitation in any state. Insurance regulations vary by state. For specific coverage decisions, consult a licensed insurance agent in your state.
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