Risky Business
A Small Business Insurance Guide for Independent Insurance Agents and Brokers

Chapter 2: How Insurance Protects Your Agency
Part 4: Surety Bonds for Stock Brokers and Insurance Agents

Government regulations or companies and clients that you contract with may require you to carry a Surety Bond for extra security. For example, many brokers are required by their state government to carry bonds.

Some state and local laws require brokers to be bonded.

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What is a Surety Bond? In the most general terms, a Surety Bond is a written agreement that involves three parties:

  • An obligee. Someone you are contractually providing services for.
  • The principal. The person who is providing the contracted services (you).
  • The surety. The entity that has your back financially. Usually, the surety is an insurance provider.

Essentially, a Surety Bond promises that if you do not fulfill your contractual obligations to the obligee, then the surety will compensate that party. However, unlike an insurance policy, you must pay the surety back any amount they pay on your behalf.

As the bond holder, you must pay back any amount a surety pays a third party on your behalf.

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You most often hear about Surety Bonds in the construction industry. But they are also common in the world of brokers, where professionals must uphold fiduciary responsibilities. Think of it as an extra layer of security when a lot is at stake.

Next: Part 5: Independent Agents: Know What Business Insurance Can't Cover

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