Contractor license bonds: bonded vs insured, the amount by state and its price

What the bond protects

A contractor license bond is a promise to the state and to the public. If a licensed contractor takes a deposit and abandons the job, violates the building code, fails to pay a supplier who then liens the house, or does not pay workers, a harmed party can claim on the bond. The surety pays valid claims up to the bond amount and then recovers the money from the contractor. The bond is therefore not a substitute for general liability insurance, which covers damage and injuries, nor for a performance bond on a specific project.

Because the bond amount is small compared with a large job, it protects mostly homeowners on small jobs and workers with unpaid wages. California makes that explicit: its $25,000 bond must be in force to issue, reactivate or renew any active license.

Bonded and insured: two different promises

"Bonded and insured" on a truck or a website joins two separate things. Bonded means a surety bond is on file with the licensing board: if the contractor breaks the licensing law, a harmed customer, worker or supplier can claim on it, and the surety then collects the money back from the contractor. Insured means the contractor carries a general liability policy, and often workers' compensation, which pays for damage to your property or injuries on the job without the contractor repaying the insurer. The bond protects you against the contractor's misconduct; the insurance protects you and the contractor against accidents.

Neither one guarantees the quality of the finished work beyond the bond amount, which is small next to most jobs. Before signing, look the contractor up on the state board's license search: California's license check and Washington's contractor lookup show the bond on file, its surety and its amount, and a suspended or cancelled bond appears there too. Ask for the insurance certificate separately, since a board lookup does not always show it.

State by state: very different rules

California raised the contractor license bond, the bond of qualifying individual and the disciplinary bond to $25,000 on January 1, 2023 under Senate Bill 607, up from $15,000. A limited liability company also needs a $100,000 bond for its workers, on top of the license bond. Washington more than doubled its continuous contractor bonds on July 1, 2024: $30,000 for general contractors and $15,000 for specialty contractors, up from $12,000 and $6,000.

Oregon ties the bond to the endorsement. Since January 1, 2024, a residential general contractor posts $25,000, a residential specialty contractor $20,000, a residential limited contractor $15,000, and commercial contractors at level 1 up to $80,000. A business with both residential and commercial endorsements posts two bonds. Arizona grades by license type and the contractor's estimated annual volume: a residential specialty contractor under $375,000 a year posts $4,250, a commercial general contractor above $10 million $100,000. Residential contractors also pay into the state recovery fund.

Nevada leaves the amount to its board, which sets it from $1,000 to $500,000 when it approves the license, based on the license's monetary limit, the applicant's finances, experience and character. The approval letter states the figure. Florida requires no license bond of contractors in general; a $100,000 bond applies only when a Financially Responsible Officer is used, and a bond is one way to meet the financial test for applicants with a credit score under 660. Cities and counties in Florida and elsewhere often add local permit bonds.

What it costs

Contractor license bonds are priced like other license bonds: a yearly rate on the bond amount, set mostly by the owner's personal credit. With a score of 700 or more, published grids give $188 to $375 a year for the California bond and $225 to $450 for the Washington general contractor bond. With lower scores the rate rises to several percent. Past claims, liens and unpaid judgments raise it further, and Washington requires a larger bond from contractors with unpaid final judgments.

Filing and keeping the bond

The bond is filed with the board on the state's own form, in the exact wording the board prints; a bond written on an agency's generic form is rejected. Most contractor bonds are continuous: they stay in force until the surety cancels them with notice, often thirty to sixty days, and the license is suspended if no replacement reaches the board in time. The premium is paid each year at renewal. A contractor who changes entity, for example from sole proprietor to LLC, needs a new bond in the new name.

License bond or project bond

A license bond is not what a public owner asks for on a construction contract. Public works above a threshold require performance and payment bonds for the full contract price, and bidders often need a bid bond. Those are priced on the contract, not on a fixed license amount, and they weigh the company's financial statements heavily.

Some cities and counties ask for their own contractor or permit bond on top of the state license bond, often for work in the public right of way, such as sidewalks, driveways and utility cuts. Those local bonds are usually small and priced at a flat fee.