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What is a Surety Bond Renewal?
Most surety bonds, especially license and permit bonds, are issued and valid only for periods (or terms) of one or two years. There are also bonds called continuous surety bonds, with no specified end date. Unlike the majority of bonds, these must be cancelled by the principal. Annual or term surety bonds, on the other hand, run out or expire and need to be renewed if the principal wishes to remain bonded.
The surety bond term is the period during which a surety bond guarantees the coverage of a surety to the obligees of the bond. If a claim is made against the bond during its duration (and in certain cases, for a limited amount of time after the bond’s duration) the surety is there to compensate obligees.
How Do Surety Bond Renewals Work?
When the time for renewal comes, sureties usually notify principals well in advance. Though it depends on the surety, this is usually between 30, 60, or 90 days. There’s a misconception that one can wait to renew until the previous bond runs out, but this isn’t true. In fact, if a principal is operating without a bond, this can endanger their business.
The advance notice that sureties must give also includes the possibility to cancel a certain bond if principals do not renew it. Therefore, it is important for principals to be aware of the time they have to renew a bond and to do so in time.
When renewing a bond, principals don’t have to sign a new indemnity agreement with the surety, nor is an entirely new bond issued. Instead, sureties reevaluate principals and the risk associated with bonding them in order to determine whether they need to make a change to the surety bond cost or premium. In certain cases, a new bond may be issued but this is usually only done at the explicit request of the bond’s obligee(s).
When reevaluating principals, the rate of their bond doesn’t necessarily go up or remain the same. Many principals have the chance to actually lower their rate if they have improved their credit score and other financial indicators over the period of time since they got bonded last. If they demonstrate a better standing than they did previously, principals will usually receive a better rate on their bond than the first time around.
Once a principal has paid their premium, the surety will notify the bond’s obligee(s) that the bond has been renewed. At this point, the surety bond is successfully renewed and principals can proceed with renewing their license.
If you would like to know more about how surety bonds work, have a look at our ‘What is a Surety Bond’ page. If you have any questions which you would like to ask us, call us at (866) 450-3412 to speak to one of our surety bond experts. We will gladly answer all your questions and provide you with advice or assistance in getting bonded.
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