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Most people find themselves plenty busy as the year draws to a close, what with preparing for the holidays, making travel plans, spending time with friends and family—the list just keeps on going. There are hardly enough hours in the day for the all of that, let alone keeping track of surety bond renewals. By no means do all bonds need to be renewed by December 31, but it is important that principals who must meet that deadline do so on time. Whether or not their bond expires in December, there are a few things all principals should be aware of before renewing their surety bond.

Is your bond coming up for renewal in December? Find out here!

If this is your first time renewing, or you don’t recall how the process works from years past, this guide will quickly answer 4 of the most frequently asked questions when it’s time to renew.

Can I renew before my current bond term has ended?

Absolutely! In fact, it is highly encouraged that all surety bond renewals are done before the current term has ended. That way, there is significantly less chance of any complications that could arise as a result of a lapse in coverage. When renewing, it is important to keep in mind that by waiting until the last minute, it is possible that the obligee may not process the principal’s renewal immediately. If there is a lapse in coverage—possibly due to the principal’s failure to renew on time or the obligee not processing it right away—the principal may find themselves without the bond coverage required of them, which may result in penalties. This is especially true for those renewals due at the end of the year, when many local and state offices have more limited hours of operation. In order to help avoid any consequences for not renewing on time, bond providers will almost always begin contacting the principal between 60 and 90 days prior to the end of the term.

How much do surety bond renewals typically cost?

As is true for a first-term bond, there are several factors that are taken into account when determining the premium to be paid for the next term. Although these factors are not uniform for all bonds, the majority of underwriters will take the following into account before deciding on the premium:

Risk: Underwriters will assess the likelihood of a claim against the bond by checking into the frequency of claims in the past for that bond type. The greater the chance of a claim, the more premium the surety typically requires for issuing the bond. However, having multiple years of experience in the industry and avoiding claims throughout the years may help to secure a lower rate on surety bond renewals.
Bond Amount: It makes sense that underwriters take the bond amount into consideration, as it goes hand-in-hand with risk. The surety is essentially guaranteeing to the obligee that the money is available one way or another in the event of a claim against the bond. As the bond amount increases, the surety becomes more wary of the principal’s ability to repay the cost of a claim against the bond and therefore may require a higher premium. Providing the underwriter with business and personal financial statements is also helpful to the surety, as it allows them to better understand the principal’s financial situation.
Credit Score: Although some bonds may be issued instantly without a credit check, many require an underwriter’s review of the principal’s credit before issuance. This can be either helpful or harmful as far as renewal premium is concerned. On the one hand, a principal whose credit has improved significantly may find themselves paying less for their renewal, while a lower credit score often means an increase to the premium before a renewal can occur.
For the most part, it is impossible to know exactly what surety bond renewals will cost without speaking to a surety professional who can work with underwriters to determine the best rate for the next bond term. However, if nothing has changed drastically over the course of the previous term, it is a safe assumption that the renewal premium will be comparable to that of the previous term.

What kind of documentation will I receive upon renewing my bond?

The documentation provided varies depending on what type of bond is being renewed and by whom it is required. While some bonds are continuous and require no new documentation, others may indicate that a continuation certificate is required at the time of renewal. In some instances, especially when a bond has a fixed term end date, an entirely new bond is required by the obligee.

Renewal documentation is not something that principals renewing their bond should greatly concern themselves with, as the company who is handling the renewal should know what is required by the obligee and provide all necessary documentation to the principal. If the obligee changes their renewal requirements without notifying the principal or bond provider and a principal finds him or herself lacking the necessary documentation, they should contact their provider to obtain the required materials.

What if I choose not to renew?

Principals who do not wish to renew their bonds should be familiar with the repercussions of letting their bond lapse before making the decision not to renew. Almost all license and permit bonds are required in order for the principal’s license and/or permit to remain active. If the bond has a clause indicating that it is continuous until canceled, then the principal simply need not pay their renewal premium and the bond will simply be terminated. Again, it is important to understand that the principal’s license and/or permit will be canceled shortly after the termination of their bond, since they no longer meet all licensing requirements. After a certain amount of time has passed, a who principal wishes to reactivate their license may have to begin the application process over from the beginning, so the decision not to renew should be decided after careful consideration.

Other bonds, such as contract and court bonds, cannot simply be terminated due to the principal not paying their renewal premium. Before the surety may cancel these bonds, the principal must first provide the surety with a letter from the obligee stating that they have met the terms and conditions of the bond and are released from further liability. If the surety does not receive either the premium for the next term or a release from the obligee, they will go so far as to take the principal to collections in order to receive the premium owed to them, as they are still bound in a legal contract with the principal.

Once the renewal process is understood, it becomes clear that it is, for the most part, simpler than the initial application. Principals can rest assured knowing that their bond provider is working on their renewal well before it is due. In fact, by the time the principal receives a call regarding their renewal, the bond provider should have a quote prepared, meaning that renewing their bond is as simple as paying the premium for the next term!