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Surety Bonds

Everything New PIs Should Know About Surety Bonds

If you’re new to private investigation or expanding to a new state, you need to understand private insurance surety bonds and their importance. This is frequently a requirement to do PI work and comes with an associated cost to keep in mind when planning your business. Clients may want to see proof that you are “bonded” properly before hiring you, especially professional clients that may have frequent work for you. Let’s go over the details.

Basics First: What is a Surety Bond?

It’s a type of contract-based insurance that involves a third party to help guarantee that projects or services will be completed as defined by the contract. There are several kinds of surety bonds based on the goal, but they are typically defined by three parties: The Principle (the business performing the service), the Surety (the third-party overseeing and guaranteeing the bond), and the Obligee (the client protected by the bond). Along with licensing and more traditional insurance policies, bonds are a common requirement for many kinds of small businesses.

A surety bond is set for a specific amount of money, which can range greatly. PIs may find recommended bonds to be anywhere between $5,000 to $50,000. The bond is paid out to obligees if they can show that the private investigator caused loss via negligence, didn’t fulfill their contract, or caused some type of financial loss. The claim is then checked and validated, and if confirmed the bond is paid.

Do I Need a Surety Bond for My PI Business? How Do I Know?

Technically, you may not need a surety bond to get started. That depends on individual state legislation and, just like licensing, that can vary a lot. Some states don’t require a license at all, and some require a license but not a bond. About half of the states currently require a surety bond as part of the private investigator licensing process. That includes states like New York, Utah, New Hampshire, and Oregon. You can look up your own state’s regulations to learn more.

Are Surety Bonds Expensive for PIs to Obtain?

There are two ways to look at surety bond expenses.

First, a surety bond is fairly affordable to get. You have to fill out the required forms from a state or surety agency and submit your paperwork along with a premium fee. The fee for the bond is usually a small percentage of the total bond amount, like 1%. That usually works out to around $100, which you’ll need in cash. You may also need to pass a credit check: This is rarely an issue, but it may affect your premium.

Then you will have to maintain the bond, similar to a business license, which typically requires repeat premium payments every year. You should budget for these payments based on the size of your bond.

That’s generally all that PIs need to worry about. But things change a lot if a client makes a claim on the bond – also known as a “call” – and it is validated after evidence is collected. After this, the process can vary based on the type of bond and who the Surety is. Sometimes, the groups try to work out an agreement to fulfill the terms of the contract. But if this isn’t possible, then payments are made from the bond’s principal to resolve the issue or pay back the Obligee their expenses.

That spells trouble for a PI. The Surety is then likely to collect penalty fees (usually including repayment of all costs), and if the state requires a bond, it may suspend the PI’s license. This can be very expensive for a private investigator and may ruin their business.

How Likely is a Surety Bond Problem?

Angry clients can try to make a surety bond call for all kinds of reasons. But the bar to prove a claim like this is very high. The right paperwork has to be filed, and an investigation will have to prove that a PI clearly violated the terms of a contract or caused damages of some kind. Even then, surety agents are likely to avoid making a bond payment if it’s possible to find another arrangement. PIs acting according to the terms of their contract rarely have anything to worry about.

Bonded & Insured?

There’s a good reason many PI businesses list that they are “bonded and insured,” especially when they operate in a state that requires a surety bond. Plus, many clients will want to know that their private investigator is bonded so that there’s recourse if something goes badly wrong. It’s an important way to build trust with new clients and show professionalism.

If you aren’t sure how to start the surety bond process, you have a few options. Head to your state’s website and see if you can apply directly for a surety bond using their web tools. Otherwise, you can contact your insurance company and see if they offer surety bonds, or if they can recommend a surety agency.

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