Los Angeles Insurance Bond

2page-img2An insurance bond is a legal contract that involves three different parties. The first party would be the bonded party (the client seeking the bond), more commonly known as the Principal. The second party is the oblige or the party that is requesting the bond from the client or the one who is the recipient of an obligation. And lastly the third party or the surety (insurance company), who is the called the obligor who assures the oblige that he principle can perform the task.

Take a surety bond for example, this is a guarantee that the principle in the bond, will perform the “obligations” as stated in the bond contract. For example, these obligations can require a project being completed on a set date, performing certain tasks according to city codes, etc. Once the principal has met the conditions or obligations agreed upon by both parties the bond becomes “void”. This contracted agreement of the bond normally holds both the Principal and the Surety the primary responsibility to meet the terms of the bonds, jointly and severely. In other words the oblige could go after either party individually or both parties in the event of failure to satisfy the terms of the bond.

There are hundreds of types of bonds which include the following:


  • Auto Dealer bonds: A bond required by many states for new ventures in establishing a used car dealership.
  • Bid Bonds: Provide guarantees that certain individuals will sign the contracts when a bidder wins the auction and the sale is awarded to the winner.
  • Broker Bonds: A bond required by the government from tobacco distributors, to assure that they will pay taxes.
  • Completion Bonds: A guarantee that a project will be completed on or before a specific date, regardless of any unforeseen circumstances.
  • DME Bonds: Bonds that are required by the federal government (Medicare) from the Distributors of medical equipment.
  • Fidelity Bonds: Guarantee the lack of harmful or dishonest acts of certain individuals (e.g. employees).
  • Freight Broker Bonds (aka ICC Bond, or BMC-84) A bond that a federal government body (FMCSA) Requires from all transportation / freight brokers to operate – to guarantee delivery.
  • Fuel Tax Bonds: A bond to guarantee payment of truckers of fuel taxes sold in a particular area.
  • Jail Bonds: Guarantee that an individual will come back to jail/court on / before a particular date.
  • License and Permit Bonds: A category of bonds, not a type. This category includes contractors bonds, auto dealers, brokers, and other types.
  • Liquor Tax Bonds: A bond to guarantee that the owner of a liquor establishment will pay liquor taxes to the government.
  • Lottery Bonds: A bond that the establishments with state lotto machine are required to have to guarantee payments of lotto money to the state.
  • Mortgage Banker/ Lender Bonds: Not the same as mortgage broker. This bond guarantees that the lending institution is going to stick to the state laws related to lending.
  • Payment Bonds: Guarantee certain payments are made by a specific date.
  • Payday Loan Bonds: Bonds that guarantees that payday lenders are operating per the state laws and rules.
  • Sales Tax Bonds: A Bond that guarantees the payment of sales tax to the government.
  • Title Agency Bonds: Required by many local governments to guarantee the title agents.
  • Utility Bonds: Used to guarantees the payment of the utility bills in timely manner.

Cost of Bonds

The cost of the bond depends on the amount of the bond, the credit of the Principal, and the type of bond. For example a $10,000 contractor bond is less than a $50,000 similar bond. Some bonds require strict credit and financial underwriting. A $20,000 used car dealer bond could sell for less than $200 for someone with good credit. But may cost $1500 (or even not be available) for someone with bad credit. Insurance companies also compete among each other, so a bond can vary in cost from company to company.