License and Permit Bond: A Comprehensive Guide
This guide provides information for insurance agents to help their customers obtain a License and Permit bond.
What is a License and Permit Bond?
License and Permit bonds, sometimes called L&P or Business License bonds, are a class of surety bonds that individuals or businesses must purchase as a prerequisite to obtaining a professional or business license or permit. License and Permit bonds are most often required by a government agency and protect the public from financial harm if the license/permit holder violates the terms of their license. For example, if an auto dealer sells a car with a faulty odometer, then the customer could file a claim against the dealer’s bond to recover their losses.
Any surety bond that serves as a prerequisite to obtaining a license or permit is considered an L&P bond.
Unlike most insurance products, surety bonds protect a third party (the obligee) from acts that violate the law. When the surety company suffers a loss due to a license or permit holder’s actions, the license or permit holder must repay to the surety company any losses and sometimes court costs and other fees.
Who is Required to Purchase a License or Permit Bond?
Most states and municipalities require certain professionals and businesses to obtain a surety bond before being issued a license or permit. License and permit bonds are often required for businesses and professionals whose work can cause citizens and/or public entities to suffer financial harm. Common professions that require License and Permit bonds include:
Who Regulates License and Permit Bonds?
Most License and Permit bonds are regulated by state and local government agencies based on license laws written by each state or local legislature. Governments enforce the law by instituting licensing requirements like minimum years of experience and a surety bond. The surety bond ensures that the public will be compensated if the public adjuster violates the terms of their license.
How Can an Insurance Agent Obtain a License and Permit Surety Bond?
BondExchange makes obtaining a License and Permit bond easy. Simply log in to your account and use our keyword search to find the “license” or “permit” bond in our database. Don’t have a login? Gain access now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone at (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.
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Is a Credit Check Required to Purchase a License and Permit Bond?
The underwriting requirements for License and Permit bonds differ on a bond-by-bond basis. Some License and Permit bonds are considered low risk and are instantly issued at a consistent price, regardless of the license or permit holder’s credit history.
Other License and Permit bonds are considered to be riskier and surety underwriters will review the license or permit holder’s personal credit to determine their eligibility and rate. The credit check is a “soft check”, so the credit review will not affect the license or permit holder’s credit. Underwriters will consider other aspects of the bond application, but credit scores and their underlying data remain the primary underwriting tool for License and Permit bonds that are not issued instantly.
How Much Does a License and Permit Bond Cost?
Low-risk License and Permit bonds can cost as low as $100 per year or $10 per month (BondExchange is the only wholesale surety company to offer monthly subscriptions).
The premium rate for License and Permit bonds subject to underwriting requirements will depend on the specific bond being applied for and the applicant’s credit and business experience. The chart below offers a quick reference for the approximate cost of a $50,000 License and Permit bond.
$50,000 License and Permit Bond Cost
| Credit Score* | Bond Cost (1 Year) | Bond Cost (1 month) |
|---|---|---|
| 720+ | $375 | $38 |
| 625 – 719 | $500 | $50 |
| 600 – 624 | $1,250 | $125 |
| 575 – 599 | $1,500 | $150 |
| 550 – 574 | $2,500 | $250 |
| 500 – 549 | $3,500 | $350 |
*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.
What Information is Collected for a License and Permit Bond Application?
Surety company underwriters will collect and review the following information to determine eligibility and rate for a License and Permit bond:
- Applicant’s legal name and DBA if applicable
- Applicant’s address and phone number
- Years in business
- Contact phone number
- Owner(s) name, address, and social security number (if subject to underwriting)
BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.
How Are License and Permit Bonds Filed?
Surety bond companies will provide the license or permit holder with a completed surety bond to be filed with the obligee either online when submitting their license applications or 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
What Can License or Permit Holders do to Avoid Claims Against Their Bonds?
To avoid claims against License and Permit bonds, license or permit holders must follow all license/permit regulations in their state or local municipality. Best practices for avoiding claims include:
- Not engaging in acts of fraud
- Not engaging in unfair business practices
- Repairing all damaged property/infrastructure
For example, if a contractor is issued a sidewalk excavation permit and fails to properly restore the sidewalk after the completion of their project, then the entity that issued the permit can file a claim against the contractor’s bond to recoup their losses.
What Other Insurance Products Can Agents Offer License and Permit Bondholders?
Most reputable professionals and businesses that are required to purchase a License and Permit bond will purchase liability insurance as well. 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 lottery retailer space can be found here.