If you’ve been searching for some insight regarding the upcoming renewal of your surety bond, you’ve come to the right place.
We’ll give you a clear understanding of the different types of surety bond renewals and extensions.
We'll also discuss how to renew and extend your bond without breaking a single sweat.
Yes, we agree that renewing or extending a bond can be confusing.
The first step is to know which type of renewal or extension is required.
Is it a continuation certificate? A renewal bond? Or a verification certificate?
The secret sauce when renewing or extending the life of a bond is to note the language related to the surety bond contract.
Let’s start with the ‘surety bond term’.
Surety Bond Term
You first need to know the term of your bond prior to renewing a bond or extending it.
There are surety bonds that are issued for indefinite periods. There are also those that are valid within a specific period.
Take license and permit bonds as an example. Often, the validity of these bonds coincides with the duration of the license.
A surety bond term is simply the period in which the bond will remain valid.
During the given period, the surety will take the risk for the Principal’s (you) non-performance of his contractual obligations.
The surety bond term can be found in the optional clause section of a bond form.
It is also stated in statutes, regulations, or ordinances.
The term of the bond may be:
- Non-cancelable – A bond with no termination date.
- Continuous until canceled – The bond will be enforceable until the surety provides a cancellation notice to the Obligee.
- Renewed by certificate – The bond may be extended by a continuation certificate once it reaches its expiration date.
- Definite stated term – The validity period is specified. For example, the bond will only be valid for 1 year.
What are the types of Surety Bond renewals and extensions?
The different types are the following:
- Verification Certificate
- Renewal Bond
- Continuation Certificate
Providing a verification certificate is the least taxing of all renewals. This is because it eases the burden of the Principal filing new paperwork every year.
Verification certificates are used for continuous bonds.
When a bond has been in file for years, the Obligee will usually request that a verification certificate be submitted in order to check whether the bond is still in full force.
The Obligee may request a verification certificate multiple times per year as is the case with mortgage broker bonds.
These are bonds that have specific renewal dates that have been provided by the Obligee.
For example, the Georgia Registered Producers License Tax Liability Bond’s validity is 5 years. The Department of Revenue of the State of Georgia (Obligee) requires the registered producer of distilled spirits (Principal) to renew the bond on the 5th calendar year from the date the bond was enforced.
From our example, the full bond penalty will be up to five years until a new bond is issued.
When a renewal bond is issued, it will usually have the same bond number as the bond that was originally executed.
Bonds that have expiration dates can be renewed by a continuation certificate.
For example, if the bond expires in 5 five years, a continuation certificate must be filed with the Obligee to extend the term of the bond.
There’s no need for the Principal to go through the steps in acquiring a new bond.
A continuation certificate will be enough to show the Obligee that the bond is still in effect.
How to renew or extend a surety bond?
Renewals and extensions are practically stress-free since they are handled by the surety bond provider.
You won’t miss the expiration date of the bond because the Surety will send you an invoice before the bond expires.
When you are issued an invoice for renewal, it is best to take action immediately.
Holding off on renewing your bond or paying the premium will result in a lapse in coverage.
It is also possible that the Obligee may not process the renewal as soon as it is filed, resulting in penalties.
The amount of bond premium that you have to pay will depend on the three C’s (character, capacity, capital) of the surety bond. These will be assessed by an underwriter.
If one or all of the aforementioned factors have changed, your bond premium may be higher or lower than the initial bond premium that you paid.
Do you need help in renewing your bond? Contact us. We’ll be glad to assist you!