How Much Surety Bond Coverage Should a Contractor Have?

A surety bond or contractor bond is a form or insurance you're required to purchase for the protection of your customers.

And while every surety bond has an associated bond amount, this is not an amount you choose.

The bond amount is always told to you.

What is the Bond Amount?

Just to recap, the bond amount is the maximum level of coverage available to your customers.

Who Sets the Bond Amount?

The bond amount is determined by the type of contractor bond you require.

There are 3 main types of contractor bonds:

• Contractor license bonds
• Permit and/or Right of Way bonds
• Construction and Performance bonds

Contractor License Bonds

The state, county, or city requiring the bond typically has a predetermined bond amount written into law.

Some licensing agencies may assess your financial history to determine a more customized bond amount. But they will still tell you the exact amount you need to purchase.

Permit and/or Right of Way Bonds

A permit bond is a surety bond that covers one specific project.

A right of way bond is a type of permit bond. Most of the time, these are required by a state or city government agency that is responsible for the project.

Just like a license bond, the amount will be told to you by the project owner.

Construction Bonds

Similar to permit and right of way bonds, a construction bond is usually a series of bonds for a the life of one project.

Thse include a:

• Bid bond
• Performance bond
• Payment bond

There are potentially many more depending on the project.

Just like a permit and right of way bond, you will be told the bond amount. The amount will be directly related to the project value and materials required to complete the project.

Bottom line, when you're required to purchase a contractor surety bond, you will be told the bond amount. It's something you don't choose yourself.