License and Permit Bond: A Comprehensive Guide

This guide is a valuable resource for insurance agents assisting clients in acquiring License and Permit bonds (L&P or Business License bonds). L&P bonds are a class of surety bonds necessary for individuals or businesses to secure a professional or business license or permit. They serve as protection for the public against financial harm resulting from violations of license terms, ensuring accountability for actions such as selling a car with a faulty odometer.

Typically mandated by government agencies, L&P bonds differ from traditional insurance products as they safeguard a third party (obligee) from law-violating acts. When a surety company suffers a loss due to a license or permit holder's actions, the holder must reimburse the losses and associated costs.

Who Needs a License or Permit Bond?

In many states and municipalities, specific professionals and businesses are required to obtain a surety bond before being issued a license or permit. These bonds are commonly needed for professions and businesses whose activities could cause financial harm to citizens or public entities. Notable examples include auto dealers, contractors, public adjusters, pawnbrokers, auctioneers, and notaries.

Regulation of License and Permit Bonds

Governed by state and local government agencies, the regulation of L&P bonds is based on laws established by each jurisdiction's legislature. Governments enforce these laws by instituting licensing requirements, including mandatory surety bonds. This ensures compensation for the public in case a licensee violates the terms of their license.

Obtaining a License and Permit Surety Bond

BondExchange simplifies the process of obtaining L&P bonds for insurance agents. Through a user-friendly platform, agents can log in, use a keyword search to find the relevant bond, and proceed with the application. BondExchange, with 40 years of experience, advanced technology, and market access, ensures efficient and friendly service.

Credit Check and Cost

Underwriting requirements for L&P bonds vary. Some low-risk bonds are instantly issued at a consistent price, irrespective of the applicant's credit history. Others are subject to a credit check, with the credit review being a "soft check" that doesn't impact the applicant's credit score. The cost of L&P bonds depends on factors like the specific bond, applicant's credit, and business experience.

Information Required for Application

Surety company underwriters collect and review information such as the applicant's legal name, DBA if applicable, address, phone number, years in business, contact phone number, and owner(s) details for underwriting purposes.

Filing License and Permit Bonds

Surety bond companies provide completed bonds to be filed with the obligee either online during license applications or by mail. The bond includes essential information like the legal name and address of the entity, surety company details, bond amount, signatures, effective date, and the corporate seal of the surety company.

Avoiding Claims and Additional Insurance Products

To prevent claims against L&P bonds, license or permit holders must adhere to all regulations in their jurisdiction, refrain from fraudulent or unfair practices, and repair any property or infrastructure damage promptly. Many businesses obtaining L&P bonds also purchase liability insurance.

In summary, this comprehensive guide covers the necessity, regulation, acquisition, and management of License and Permit bonds, providing insurance agents with essential insights for assisting their clients.