What a surety bond is, and how it differs from insurance
A surety bond is a guarantee that you will follow a law or a contract. Pick a bond below to see the amount required and its usual price.
Contractor bond premium in California
$188 to $375
estimated, per year, for a $25,000 bond
| Bond the state requires | $25,000 |
| Which amount | Contractor license bond |
| Rate for credit 700 or higher | 0.75 % to 1.5 % a year |
| Term | 1 year, renewed yearly |
Estimate from published rate grids, not a quote. Cal. Bus. & Prof. Code § 7071.6 (SB 607). Amount read on the official page, October 22, 2026.
Compiled by Radif Partners · Method and sources · rules read October 22, 2026
A surety bond is a written promise by a surety company that you, the principal, will meet an obligation set by a third party, the obligee: a state licensing law, a federal regulation, a court order or a construction contract. If you fail and someone is harmed, the surety pays the claim up to the bond amount, then recovers that money from you under the indemnity agreement you signed. That last point is what separates a bond from insurance: the risk stays with you, and the premium pays the surety for its credit, not for absorbing losses. The obligee sets the amount, for instance $50,000 for an independent car dealer in Texas or $25,000 for a California contractor. The surety sets the premium, usually a small share of the amount: about $375 to $750 a year for that Texas dealer bond with good credit, on published rate grids.
Three parties, one promise
Every surety bond names three parties. The principal is the person or business that must be bonded: the notary, the car dealer, the contractor, the freight broker, the executor of an estate. The obligee is the party that requires the bond and can claim on it: a state agency, a federal agency, a court or a project owner. The surety is the insurance company that issues the bond and promises the obligee that the principal will do what the law or contract says.
The promise is limited by the bond amount, also called the penal sum. It is the most the surety will pay on all claims during the bond's term. A $10,000 Texas notary bond can pay at most that sum to people harmed by the notary's acts, whatever the number of claims.
Why a bond is not insurance
An insurance policy transfers risk: if your house burns, the insurer pays and does not ask you to pay it back. A surety bond does not transfer risk. Before issuing it, the surety asks you, and often your spouse or your company's owners, to sign a general indemnity agreement. If the surety pays a claim, it bills you for the full amount plus its costs. The surety therefore underwrites a bond like a loan: it wants to know that you will be able to repay, which is why your credit score sets most of the price.
This also explains why the premium is small compared with the bond amount. Sureties price bonds expecting few losses after recovery, so the premium is closer to a fee for lending their credit than to an insurance premium.
Premium of a bond for each credit score
Premium for a $25,000 bond, credit 700 or higher
$188 to $375
| Rate range | 0.75 % to 1.5 % |
| Best tier (700 or higher) | $188 to $375 |
| Lowest tier (under 550) | $1,250 to $3,750 |
Who sets the amount
The obligee sets the amount, and it is written in a public text. For license bonds, that text is a state statute or an agency rule: Florida asks car dealers for $25,000, Washington asks general contractors for $30,000. For federal bonds, it is a regulation: $75,000 for every freight broker, 10 percent of plan funds handled for ERISA. For court bonds, the judge sets it from the value of the estate or the amount at stake. For contract bonds, the owner sets it, often at 100 percent of the contract price.
The surety cannot lower that amount; it can only decide whether to issue the bond and at what premium. That is why the amount on this site always comes from the official page, and the premium is always shown as an estimate.
Four families of bonds
Commercial bonds are the largest group. License and permit bonds are required to hold a license: notaries, car dealers, contractors, mortgage brokers, collection agencies and many more. Title bonds let a vehicle owner register a car whose title was lost. Federal bonds include the freight broker BMC-84 bond and the ERISA fidelity bond. The license and permit bond page covers the general case.
Contract bonds guarantee construction work. A bid bond promises that a winning bidder will sign the contract; a performance bond that the work will be finished; a payment bond that subcontractors and suppliers will be paid. Court bonds, such as probate bonds, guarantee that an executor, guardian or appellant will act as the court orders. Fidelity bonds protect an employer or a benefit plan against theft by employees.
What happens after a claim
A claim starts when the obligee or a harmed party says the principal broke the obligation: a dealer did not transfer a title, a contractor walked off a job, a broker did not pay a carrier. The surety investigates, asks the principal for its side, and pays only valid claims. Once it pays, it asks the principal for reimbursement. A principal who cannot repay may face a lawsuit, and a paid claim makes the next bond harder and dearer to obtain. For freight brokers, a paid claim that pushes the bond below $75,000 can now lead FMCSA to suspend the registration.
Term, renewal and cancellation
License bonds usually run one year and renew with the license, though some states set a longer term: four years for most notary commissions, three years for new Virginia dealers. A bond stays in force until the surety cancels it with notice to the obligee, often thirty days or more; the license may be suspended if no replacement bond is filed. Contract bonds cover the life of the project plus a warranty period, and their premium is paid once.
Before you buy
Check the exact amount and the form on the agency page: many states require their own bond form with set wording, and a bond on the wrong form is rejected. Then compare premiums against the published ranges for your credit tier. A California contractor bond of $25,000 is estimated at $188 to $375 a year with a score of 700 or more on published grids; a quote far above that range deserves a question.