The Ultimate Guide to Renewing your Surety Bond

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Renewing a Surety Bond 2021

If your surety bond is up for renewal and you’re looking for the right answers on how to go about it, you’ve come to the right place!

We’ve created a comprehensive Q&A list to help you renew your bond safely and easily.

But before we delve into that, let’s first take a quick look at the key players of a surety bond since they’re going to appear multiple times in this guide.

  • Principal – the party responsible for the fulfillment of the obligations stated in the bond and the party who will procure the bond
  • Obligee – the bond’s beneficiary and the party requiring the bond
  • Surety – the party who will provide the surety bond

For Example: California Money Transmitter Bond

The Principal is the money transmitter, the Obligee is the State of California, and the Surety is Surety Bond Authority, Inc.

Now, let’s go over the important details about renewing a surety bond.

 

Do surety bonds expire? If yes, how long is a surety bond good for?

Yes, they do. The validity of the bond depends on the underlying law that the bond is conditioned after. In some cases, it depends on the contract that the Principal and the Obligee have agreed upon.

The validity of the bond is known as the “term of the bond”, which can be found in the optional clause section of a bond form, a statute, regulation, or ordinances.

 

There are 4 types of bond terms:

  1. Continuous until canceled

Money transmitter bonds fall under this category. Continuous-until-canceled bonds mean that the validity of the bond is indefinite until it is canceled by the Surety or if the Obligee releases the bond. Most of the time, a verification certificate must be submitted to the Obligee for this type of bond.

  1. Continued or renewed by a certificate

Some bonds can be renewed or extended by a continuation certificate. The continuation certificate, which is typically good for 1 year, must be submitted to the Obligee each time one is issued by the Surety.

  1. Definite-stated term

A fixed date is provided. For example, from January 1, 2021 to January 1, 2022. If the bond contains a definite-stated term, a new bond must be issued for subsequent periods.

  1. Non-cancellable

Even though these types of bonds have no termination dates, they can still be canceled. Unlike the continuous-until-canceled bond, the cancellation for this type is due to the performance of the underlying obligation. For example, guardianship bonds are non-cancelable, but they will be null and void once the guardian has performed his or her duties. The court will then release the bond.

 

Are all surety bonds renewable?

No, not all bonds should be renewed; some are extended. A bond’s renewal or extension depends primarily on the term of the bond.

Continuous bonds, for one, don’t need to be renewed; however, you must submit a verification certificate for it to remain valid.

Here’s an example of a provision in a continuous bond:

“This bond shall become effective as of the date the Principal(s) is issued a vehicle dealer certificate by the Oregon Department of Transportation. This bond shall be deemed continuous in form and remain in effect for the entire period for which certification is granted and for each succeeding certification period upon renewal of the vehicle dealer certificate, until depleted by claims paid, unless the Surety sooner cancels the bond. This bond may be canceled by the Surety giving written notice of such cancellation to the driver and Motor Vehicle Services Division of the Oregon Department of Transportation. This bond shall be one continuing obligation and the liability of the Surety shall be limited to the amount of the penalty of this bond regardless of whether this bond is renewed or otherwise continued in effect beyond the original certification period, irrespective of the number of years it is in effect.”

 

How should I know if my surety bond should be renewed or if it should be extended?

Here are several ways to know if your bond is renewable:

  1. Notification from your Surety

Your Surety should inform you about the validity of your bond from the get-go. If your bond is up for renewal, your Surety will notify you days before the expiry date of your bond.

In our case, we inform our clients 45 days before their surety bond is up. We ask them if they want to renew their bonds.

  1. Check the term of your bond

As mentioned earlier, the validity of your bond is stated in the bond form, statute, regulations, ordinances, or private contracts. It is important to read each carefully and thoroughly so that you’ll not only know when your bond is up for renewal, but you’ll also know if there might be any changes made upon renewal.

  1. Notification from the Obligee

In other cases, the obligee may require you to renew your bond every year. In these cases, a renewal bond must be issued by your Surety.

Renewal bonds are usually surety bonds needed to obtain licenses or permits. They have the same bond number as the original bond and the full bond penalty is available each time the bond is renewed. Sureties refer to this type of exposure as a cumulative liability.

 

Extending a bond:

Continuation Certificate

Most prefer that bonds be continuous since this will ease the burden of filing new paperwork each year. The bond form will state if the bond requires a continuation certificate. It is usually written after the “Provided, However” clause.

Once your Surety has issued a Continuation Certificate, the said certificate must immediately be filed with the Obligee.

Verification Certificate

Some continuous bonds require the Principal to submit a Verification Certificate to let the Obligee know that the bond is still in full force and effect.

Verification certificates are usually requested by the Obligee for bonds that have been on file with them for years. Before a verification certificate is issued, most sureties will require that an updated version (if applicable) of the aggregate liability be included.

 

What happens if I forget to renew my surety bond?

If you fail to renew your bond on time, your bond will lose its validity. The Surety will cancel your bond. Your Surety will send you and the Obligee a notice of cancellation.

Since bonds are required to carry on specific duties, if your bond becomes invalid, you will not be allowed to perform the said duties.

For instance, if the bond is for a license, then that license will become inactive. If you’re using the bond for your business, you cannot operate until after you have obtained a new bond.

If your bond has expired, the first thing you should do is to immediately contact the Obligee. Inquire about the steps that you must take or if there is a grace period for submitting a new bond. There are some provisions that allow the Principal to submit a bond within a specific number of days after the bond has expired.

After you’ve talked to the Obligee, apply for a bond. We know and understand that time is of the essence in cases like these that’s why we issue a renewal bond within 24 hours or less.

 

How much will a surety bond renewal cost?

Most of the time, the amount you paid for the original bond will remain the same upon renewal. In some cases, the amount may either increase or decrease, depending on several factors.

The bond premium that a Principal must pay is highly dependent on the bond amount that has been set by the Obligee, which is mostly based on relevant law.

Let’s take the California Conservatorship Bond as an example. The bond amount for that specific bond is mandated by Section 8482 of the California Probate Code. The Code states that the court-dictated amount will be based on either of the following:

  1. The estimated value of the property
  2. The annual gross income of the estate
  3. The decedent’s estimated value

The Principal’s bond premium or the amount that will be paid to the Surety can be as little as 1% of the bond amount. If any of the factors change upon renewal (i.e. total estimated value of the property), the bond amount may either decrease or increase.

Some of the other changes that may affect your surety bond cost upon renewal are the following:

  1. A new law stating an increase in the bond amount
  1. The Obligee requires a change in the bond amount
  1. The Principal breached the bonded contract which leads to an increase in the bond amount
  1. The Principal performed all his or her contractual obligations well leading to a decrease in the bond amount
  1. The Principal’s financial capacity has changed
  1. Changes in the Principal’s credit score

 

Can I still renew my surety bond even if my credit score has been downgraded?

Yes, you can still renew your bond. In some cases, we can issue a bond even if the Principal has a bad credit score.

Now keep in mind that surety bonds are credit transactions. Since one of the best indicators that the Principal can fulfill his or her obligations is by having a good credit score, the Surety underwriter will give that factor a big percentage when it comes to making decisions.

If the credit score is less than favorable, it exposes the Surety to higher risks. Higher risks mean a higher bond premium.

A Principal with a FICO score of 800 might be eligible to pay as little as 1% of the bond amount while someone with a FICO score of 650 will pay roughly 15% of the bond amount.

Our expert underwriters look at other factors to still provide favorable bond premiums to those with bad credit scores. Some of the other factors the underwriter takes into consideration are the following:

  • Financing statements
  • Interest rates being charged
  • Historical information of the business
  • Information about the business owner and officer
  • Financial statement information

 

Can I make changes to a renewable bond?

Yes, you can. You can ask your Surety to modify your bond. Your Surety will issue a surety bond rider.

Here are some of the information that can be modified:

  • Change the name of the principal – this requires a new General Agreement of Indemnity that must be signed before the rider is issued
  • Change the address of the principal
  • Increase or decrease the bond amount
  • Change the effective date of the bond
  • Change the bond number
  • Change specific language in the bond form

Underwriting is required if the rider needs to be increased. For decreasing riders (decreased surety liability), the Obligee must notify the Surety that they have received and agreed to the decrease.

Know more about a surety bond rider here.

 

What happens if there are changes to the underlying agreement?

If there are significant changes to the underlying agreement supported by the bond, the Obligee will require a Consent of Surety be provided. This must be approved by the Surety underwriter first.

Some of the changes that can be made with a Consent of Surety are the following:

  • Terms of the contract
  • The duration of the contract
  • The warranty or maintenance period
  • Other aspects of the contract

 

How do you easily renew a surety bond?

  1. Let your Surety know that you’ll be renewing your bond

You must inform your Surety as soon as you have received a renewal notification. If you are moving to a new Surety, your previous Surety must issue a notice of cancellation first.

  1. Submit the necessary requirements

The Surety underwriter may still require you to submit certain requirements especially if there are changes to the bond. The underwriter will then assess the information you’ve submitted. Some of the information that you may be required to submit are the following:

  • Credit score
  • Job or business history
  • Financial history

You don’t need to leave your home. You may send them through our secure digital platform.

  1. Sign the Indemnity Agreement

A new Indemnity Agreement will be executed if there are any changes to your bond. If there are none, you don’t need to sign a new one.

  1. Pay the bond premium
  2. Receive your surety bond

We usually send both a hard copy (via FedEx) and a soft copy of the bond within a day.

 

What do you do after your surety bond has been renewed?

  1. Check all the information on your renewed bond. Even if you trust your Surety, it is always good practice to check and double-check any document just to make sure everything is correct. Immediately inform your Surety if there are incorrect entries.
  2. Submit the bond to the Obligee

 

Can I refuse to renew my bond?

Yes, you can. Even if your bond will automatically close up if it has reached its expiration date, you will still need to inform your Surety if you don’t want to renew your bond or cancel it.

The Surety and you (Principal) must submit a Notice of Cancellation to the Obligee and it must state the following:

  • Specific date
  • Terms on the bond form
  • Underlying agreement
  • Statute, regulation, or ordinance

Other ways that a bond can be canceled:

  1. An obligee sends/informs the Principal and Surety that the bond can be canceled through a “release letter”
  2. Return of the original bond by the obligee to the surety.

 

Please don’t hesitate to contact us if you have any questions about a surety bond renewal. We’re more than happy to help!

SAFE AND EASY SURETY BOND RENEWAL STARTS HERE!

 

 

 

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