Becoming Bonded And Insured In Michigan: A Guide

Getting bonded and insured is an important step for any business owner, providing peace of mind for both the business and its clients. In Michigan, surety bonds are financial guarantees that specific obligations will be met, protecting consumers and government entities from malpractice. These bonds are often required for businesses to receive a license or permit to operate. The cost of a surety bond in Michigan typically ranges from 1% to 10% of the bond amount, with the specific rate determined by an underwriter assessing the risk of claims. To obtain a surety bond, business owners must first determine the type of bond needed and then work with a licensed agent or broker to acquire it. This process involves reviewing the business owner's finances and may include a credit check.

Understanding the difference between surety and fidelity bonds

There are several types of surety bonds, including:

• Bid bonds
• Performance bonds
• Payment bonds
• Maintenance bonds

Fidelity Bonds

Fidelity bonds, also known as employee dishonesty insurance or crime insurance, are a type of supplementary insurance used by employers and corporations. They protect companies against financial losses due to dishonest practices or misconduct by employees, such as embezzlement of funds. Fidelity bonds can be used to reimburse both the company and its customers for any losses or damages caused by an employee's misconduct.

Fidelity bonds are typically two-party insurance policies, whereas surety bonds usually involve an intermediary insurance or surety company.

The cost of getting bonded and insured

• Business Service Bonds: These protect against theft for those who work in clients' homes or businesses. They start at $125 for a 1-year term.
• Certificate of Title Bond: Required for individuals with insufficient proof of ownership of their vehicles.
• Collection Agency Bond: Required for individuals or businesses that collect debt payments.
• Mortgage Broker, Lender, or Servicer Bond: Required for certain mortgage professionals in Michigan.
• Mortgage Loan Originator Bond: Required for mortgage originators in Michigan.
• Proprietary School Bond: Required for those operating for-profit or private schools in Michigan.

The cost of surety bonds in Michigan typically ranges from 1% to 10% of the bond amount. Low-risk bonds usually have a standard premium, while higher-risk bonds may require underwriting to determine the exact cost. Your personal credit score and professional experience will also impact the cost of your surety bond.

For example, the cost of a Michigan contractor license bond ranges from $250 to $2,500, based on the $25,000 bond requirement for a security alarm contractor. The premium rate will be lower for those with a higher credit score.

How to get a surety bond

To get a surety bond in Michigan, you'll need to follow these steps:

• Determine the specific surety bond you need: Different professions and business activities have different bonding requirements. For example, contractors in Michigan have both state and local license and bond requirements. Contact the obligee requiring the bond to determine which one you need.
• Apply for your surety bond: You can apply for a surety bond through an authorized surety company or agency. Many companies offer online applications, making it a quick and easy process. You will need to provide personal and financial information, such as your credit score and professional experience.
• Receive a quote: After submitting your application, the surety company will review it and provide you with a quote for the cost of the bond. The cost of surety bonds in Michigan typically ranges from 1% to 10% of the bond amount, depending on the level of risk associated with the bond.
• Pay the bond premium: Once you have received a quote, you will need to pay the bond premium to receive your bond.
• Sign and file your bond: After receiving your bond, you will need to sign and file it with the obligee. This completes the process of getting your surety bond.

It's important to note that surety bonds are often required for obtaining a business license or permit in Michigan. They serve as a form of protection for consumers and government entities against malpractice. The process of obtaining a surety bond can vary slightly depending on the specific type of bond and the company issuing it, but the above steps provide a general guide on how to get a surety bond in Michigan.

The small business bond application process

The process of applying for a small business bond in Michigan is straightforward. Here is a step-by-step guide to help you through the process:

• Identify the Obligee and Bond Type: Contact the entity requiring you to obtain the bond, known as the obligee, to determine the specific bond you need. Different types of businesses have varying bond requirements. For instance, contractors in Michigan are subject to both state and local license and bond requirements.
• Research Requirements: Spend time researching the bond requirements that are applicable to your business type and location. In Michigan, most bond requirements for contractors are established and enforced at the local level, but there are also state-level mandates.
• Apply for the Bond: After identifying the obligee and understanding the requirements, proceed to fill out the online application form. This step is usually quick and easy, and you may receive an instant quote. For more complex applications, a quote is typically provided within 48 hours.
• Finalize the Purchase: Utilize the online payment portal to pay the premium conveniently. You will then receive your bond via email. If needed, the bond can also be mailed to you upon request.
• Sign and File the Bond: Once you have received your bond, sign it and file it with the obligee. This completes the bonding process, and you will now be in compliance with the applicable bond requirements for your business.

Additionally, it is important to note that the cost of surety bonds in Michigan typically ranges from 1% to 10% of the bond amount. The rate depends on factors such as personal credit score and professional experience. Some bonds are available at a standard premium, while higher-risk bonds may require underwriting to determine the exact cost.

Determining whether your business needs to be bonded

Being bonded means a company has entered a mutual contract between three parties: the obligee, the principal, and the surety company. The obligee is typically a government entity that requires the bond. The principal is the purchaser of the bond, i.e., the company that will provide its services to others. The surety company issues the bond and financially backs the principal's obligation.

• Mortgage professionals
• Collection agencies
• Contractors
• Auto dealers
• Individuals involved in court proceedings or appointed fiduciary duties
• Individuals seeking replacement documents for lost financial instruments or missing vehicle titles

If you are unsure whether your business needs to be bonded, it is recommended to check with your local governing agency, as regulations vary by industry and area, from federal to county-level jurisdiction.

Frequently asked questions