License and permit bonds are required by municipal ordinance, state law, or by regulation and in some instance by the federal government or its agencies. To get licensed, a contractor must have a surety bond and, a certain amount of insurance coverage. If the contractor can not obtain a surety bond written by a Surety company , in some states, a cash deposit can be made and posted to the State. The problem of posting collateral with the state is that the state may not return your cash collateral for 7 years or longer.
The purpose of a license bond is generally to safeguard the public from fraud or breach of contracts. These bonds can also benefit laborers, suppliers, and taxing authorities, as well as persons having contracts with the contractor.
The amount of the bond is the total limit of the Surety’s liability to all claimants combined together. Before stepping into a construction contract it is wise for an owner to call the licensing agency to be certain that the contractor is in good standing with the bond. Please check that all contractors should have general liability insurance as well, but one may only check the status of such insurance with state agencies in those states which require the insurance for licensing.
The contractor license bond should not be confused with a payment and performance bond
Tags: bond, insurance coverage, License and permit bonds, licensing, payment and performance bond, surety, surety bond
