Health Club Bonds: A Comprehensive Guide For Insurance Agents
July 1, 2021
This guide provides information for insurance agents to help their customers obtain Health Club bonds
What is a Health Club Bond?
Health club bonds, sometimes called fitness center or gym bonds, are government required surety bonds that health club owners must purchase to obtain a business license. Health club bonds are a type of financial guarantee bond that ensures club members will receive prorated refunds were the club to cease operations without providing services paid for. For example, if a health club were to cease operations after collecting full dues from club members, then the surety bond ensures that all dues paid but not earned will be refunded.
Most states require club owners to purchase a surety bond as a prerequisite for licensure and the bond must remain active as long as the club is in business.
Unlike most insurance products, surety bonds protect a third party (club members) for acts that are violations of the law. When the surety company suffers a loss due to the club’s actions, the defunct club’s owners must repay to the surety company any losses and sometimes court costs and other fees.
What is a “Health Club?”
Most states require health clubs to obtain a license and surety bond to operate in the state. State definitions vary on what is considered a “health club”, but the general rule of thumb is that businesses who provide members with facilities for exercising and physical conditioning must obtain a license. Health clubs are commonly referred to as gyms and fitness centers.
Who Regulates Health Clubs?
State government agencies regulate health clubs based on license law written by each state’s legislature. Governments enforce the law by instituting licensing requirements like liability insurance and a surety bond. The surety bond ensures club members will be compensated if the health club fails to offer refunds for services paid for but not received.
Is a Credit Check Required to Purchase a Health Club Bond?
Yes, surety underwriters will review your customer’s personal credit to determine their eligibility and rate for health club bonds. Most carriers use a “soft check”, so the credit review will not affect the applicant’s credit. Underwriters will consider other aspects of the club’s application, but credit scores and their underlying data remain the primary underwriting tool for health club bonds.
How Much Does a Health Club Bond Cost?
Health club surety bonds generally cost between 1.5% to 7.5% of the bond amount per year. Why such a large spread? Insurance companies determine the rate based on a number of factors including your customer’s personal credit and business experience.
Health club owners with the best credit and business experience can expect to pay the lowest rates, while owners with poor credit will pay higher rates. The chart below offers a quick reference for the approximate bond cost on a $25,000 Health Club bond
$25,000 Health Club Bond Cost Sample
|Credit Score||Bond Cost (1 year)|
|650 – 799||$500|
|600 – 649||$1,000|
|550 – 599||$1,875|
*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.
Do Surety Companies Offer Financing on Health Club Bonds?
All health care club bonds are eligible for financing because they can be canceled mid-term, other than in Rhode Island where the bond runs for a specific term. Premium finance companies usually charge a finance fee and high interest rates to provide the financing. BondExchange offers in-house payment plans for bond premiums over $500. Our payment plans are interest free and can be set up instantly online with a customer credit card and a few clicks. We offer this option automatically for bonds that meet the eligibility requirements.
What Information is Collected for a Health Club Bond Application?
Surety company underwriters will collect and review the following information to determine eligibility and rate for a health club bond:
- Club’s legal name and DBA if applicable
- Club’s address and phone number
- Years in business
- Contact phone number
- Owner(s) name, address, and social security number
For larger bond amounts (usually over $50,000), some surety companies will review the businesses financial statement. Underwriters will be looking for businesses with sufficient working capital (current assets – current liabilities) and a history of profitability.
How Do Health Clubs File Their Bonds?
Surety bond companies will provide the health club owner(s) with a completed surety bond to be filed with the relevant government agency. Most states require the original bond with a raised surety company seal to be filed by mail.
Surety companies should include the following information on most bond forms:
- Legal name and address of entity/individual(s) buying the bond
- Surety company’s name, address and phone number
- Bond amount
- Signatures of the surety representative
- Date the bond is effective and issued
- Corporate seal of the surety company
- Power of Attorney
As an added service, BondExchange is able to file California health club bonds on your client’s behalf.
What Can Health Clubs Do to Avoid Claims Against Their Bond?
To avoid claims against their bond, health club owners must ensure they refund all club members for services paid for but not received. For example, health clubs that collect monthly dues on the 1st of the month but then shut down on the 2nd must refund all member dues for the remainder of the month. Most states require health clubs to hold unearned funds in an escrow account to ensure club members will receive prorated refunds. Insurance agents should advise their health club customers to store all unearned funds in a trust/escrow account, even if there is no statutory requirement to do so, to safeguard their customers from valid bond claims.
How Can an Insurance Agent Obtain a Health Club Surety Bond?
BondExchange makes obtaining a Health Club Bond easy. Simply login to your account and use our keyword search to find the “health” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.
At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
Which States Require Health Clubs to Purchase a Bond?
26 states and the District of Columbia require health clubs to purchase a surety bond. Click on the image below to view a full list of health club bond requirements by state.
What Other Insurance Products Can Agents Offer Health Clubs?
Most reputable health clubs will purchase liability insurance to protect themselves from losses in the event a club member injures themselves on the club’s property. Bonds are our only business at BondExchange, so we do not issue any other forms of insurance, but our agents often utilize brokers on these lines. A list of brokers in the health club space can be found here.