Utility Deposit Bond: A Comprehensive Guide
This guide provides information for insurance agents to help their customers obtain a Utility Deposit Bond
At a Glance
- Average Cost: Varies based on the entity requiring the bond, usually between 2% to 15% of the bond amount per year
- Bond Amount: Usually a multiple of the applicant’s actual or estimated average monthly bill
- Who Needs It: Individuals and businesses that do not want to pay a cash deposit before receiving utility services
- Purpose: To protect utility companies from financial harm if the customer does not pay their utility bill
- Who Requires Utility Deposit Bonds: Certain utility companies that provide services to the general public
What is a Utility Deposit Bond?
A Utility Deposit bond is a type of surety bond required of individuals and businesses that do not want to pay a cash deposit before receiving utility services. Many utility companies require customers to pay a security deposit when opening an account. However, certain companies allow customers that are either unwilling or unable to pay the full cash amount to purchase a surety bond instead. Utility Deposit bonds provide financial protection to utility companies in the event the customer does not pay their utility bills.
Unlike most insurance products, Utility Deposit bonds protect a third party (the utility company) for acts that are violations of the customer’s service agreement (not paying bills). When the surety company suffers a loss due to the customer’s actions, the principal must repay the surety company for any losses and sometimes court costs and other fees.
Who Needs a Utility Deposit Bond?
As mentioned above, Utility Deposit bonds are not outright required by utility companies, but rather act as an alternative to paying a cash security deposit. Most utility companies that allow Utility Deposit bonds limit this option to commercial and industrial customers. However, a minority of companies do allow residential customers to purchase a bond as well.
Make sure to advise your customers to check if their utility company allows utility bonds before purchasing one.
Who Regulates Utility Deposit Bonds?
Unlike other types of surety bonds, Utility Deposit bonds are not required by a government agency but rather by the utility company providing the service. However, many local utility companies are owned by a municipal government. For these companies, the municipality is able to control the company’s policy regarding accepting Utility Deposit bonds.
What is the Bond Amount for Utility Deposit Bonds?
Each utility company has its own specific policy for determining Utility Deposit bond amounts. However, most utility companies require bond amounts to be equal to anywhere between 1-3 times the service location’s average monthly bill. Additionally, each state’s public service commission is able to dictate the maximum amount utility companies can require for security deposits.
Is a Credit Check Required to Purchase a Utility Deposit Bond?
Yes, surety underwriters will review your customer’s credit to determine their eligibility and rate for a Utility Deposit bond. Most carriers use a “soft check”, so the credit review will not affect your customer’s credit. Underwriters will consider other aspects of your customer’s application, but credit scores and their underlying data remain the primary underwriting tool for Utility Deposit bonds.
How Much Does a Utility Deposit Bond Cost?
A Utility Deposit bond will generally cost between 2% to 15% 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 history of bond claims.
Applicants with the best credit can expect to pay the lowest rates, while applicants with poor credit will pay higher rates. The chart below offers a quick reference for the approximate cost of a $10,000 Utility Deposit bond
$10,000 Utility Deposit Bond Cost Sample
|Credit Score*||Bond Cost (1 Year)||Bond Cost (1 month)|
|680 – 799||$300||$30|
|650 – 679||$500||$50|
|600 – 649||$750||$75|
|550 – 599||$1,500||$150|
*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.
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.
What Information is Collected for the Bond Application?
Surety company underwriters will collect and review the following information to determine eligibility for a Utility Deposit bond:
- The legal name of the applicant
- Applicant’s business name (if applicable)
- Applicant’s address, phone number, and email address
- Applicant’s social security number
How Do Utility Customers File Their Bonds?
Surety bond companies will provide your customer with a completed surety bond to be filed with the relevant utility company. The surety bond requires signatures from both the surety company that issues the bond and from the customer. In some instances, the bond will require witness signatures as well. Generally, the surety company will include the following information on the bond form:
- Name and address of entity/individual(s) buying the bond
- Surety company’s name and address
- Entity requiring the bond
- Bond amount
- Date the bond is signed
- Date the bond goes into effect
What Can Your Customers Do to Avoid Claims Against a Utility Deposit Bond?
To avoid claims on a Utility Deposit bond, your customers must ensure they pay their utility bills on time and in full.
How Can an Insurance Agent Obtain a Utility Deposit Surety Bond?
BondExchange makes obtaining a Utility Deposit bond easy. Simply login to your account, select the state the bond is needed in, and use our keyword search to find the “utility” 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.
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Which States Have Utility Companies that Allow Utility Deposit Bonds?
The following states and DC have utility companies that allow customers to purchase a surety bond instead of depositing cash: