Home Improvement Contractor Bond

A home improvement contractor bond is an agreement between the principal (the home improvement contractor seeking the bond), the obligee (the state or local government), and the surety company that issues and backs the bond. In this case, the principal is any person or business acting as a contractor for private construction. This bond is required in a handful of states to start a project and gain a permit or licensure beforehand. Unlike insurance, this bond protects the state and clients, rather than the principal, against damages or unethical and illegal business practices. Though it is most commonly referred to as a home improvement contractor bond, it may also be referred to as a home service contract provider bond. The total amount of the bond usually starts at around $10,000, and premium rates are typically as low as 1% (so $100 for a bond with a total of $10,000).

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How Much Does a Home Improvement Contractor Bond Cost?

The cost, or premium, is only a percentage of the total bond amount, and home improvement contractor bond premiums are typically between 1%-3% of the total bond amount. The obligee determines the total bond amount and depends on the state and total project cost in the plan. Surety agencies also base the price on the buyer’s credit score and history, business and personal finances, and professional experience within the industry. Of these, credit score has the most weight. Those with higher credit scores can expect rates between 1%-3%, while applicants with an average credit score should expect 2%-5%. Buyers with notably low credit scores can still get bonded but expect premium rates closer to 10%. The minimum total bond amount required is $10,000, most often required at the town or county level.

We’re committed to offering our customers the best rates available on the market for their bonds.  To do this, we have partnered with over 10 insurance partners, allowing us to find the best price available for each customer.  Each surety company will rate each business differently, so even if a business has been declined or quoted a high premium, we can find a great, affordable quote from one of our 10 partners. 

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Home Improvement Contractor Bond FAQs

Who Needs a Home Improvement Contractor Bond?

In many states, any individual or business planning to act as a private contractor for home improvement construction must post a home improvement contractor bind before applying for a permit or license and starting a project. A home improvement contractor bond may also be required in certain municipalities at the town or county level, even if there is no statewide law.

What Does a Home Improvement Contractor Bond Do, and How Does it Work?

Unlike typical insurance, a home improvement contractor bond protects the clients and the government that the contractor deals with, not the principal itself. A home improvement contractor bond is a legal agreement between the state, contractor, and surety company. The bond guarantees that the contractor will abide by the law, follow industry standards, and stick to building codes set by the local or state government. The bond’s purpose is primarily to protect clients against a project that was not completed to code, unsafe, unfinished, or unplanned. In the case that the contractor makes a mistake or is involved in unethical or illegal activity a claim can be filed against them in order to be compensated for the harm that was caused. After a claim has been filed, the surety company will pay out an amount not greater than the total of the bond to those affected, and the contractor will be required to pay the surety company the debt that is owed.

How (and How Long) to Get a Home Improvement Contractor Bond?

You can apply for a home improvement contractor bond online by completing an application. You can expect to submit your SSN for a soft credit check, proof of bond requirement, and the contractor’s business title.

Once the bond has been granted, it will be in effect and can be renewed annually as long as the principal plans to stay in business.  We’ll reach out around 30-45 days before the bond is set to expire to begin the renewal procedure.

What States Require Home Improvement Contractor Bonds?

The states below all require a home improvement contractor bond to be posted before obtaining licensure and commencing work within their jurisdiction:

• District of Columbia
• Indiana
• Maryland
• Tennessee
• Louisiana
• New York
• Ohio
• Texas
• Virginia
• Washington, D.C

However, even if a bond is not required at the state level, be sure to check with the city and county you plan on doing business in for specific requirements.

How to Avoid a Claim?

• Be upfront and honest about all projects, services, and practices. Be sure to avoid the following:
• Breaching local or state construction laws
• Leaving the property and land in worse condition than its original state
• Failing to abide by local building codes and regulations
• Failing to ensure safety of employees and clients
• Failing to ensure the project’s long term result was safe for clients
• Avoiding to follow standards set in electrical, plumbing, sewage, and other special construction sectors

What Kind of Additional Bonds May be Required?

Additional bonds may be required depending on the project's location and size. This includes but is not limited to:

• A performance bond protects the clients or homeowners from paying for extra work that the contractor did not complete or any projects that need to be fixed for any mistake caused by the contractors. If this happens, the clients can file a claim against the bond to receive financial compensation to cover it. Sometimes, the surety company may help the obligee find another way to complete or redo the project with the money from the claim.
• A payment bond is in place to ensure that the contracting boss or business will pay extra contractors, suppliers, laborers, other employees, and others to whom they may be indebted as part of the project. Those that have not received the payment they are owed can file a claim against the contractor to receive financial compensation protected by the surety bond.
• A maintenance bond - This bond is like a warranty on the project and is a bond that is in place for some time after the project is completed. It ensures that there will be no defect within the project that should appear within a given timeframe (usually a year), and that the contractor will take care of it if an issue does present itself. If the contractor does not follow through on the agreement, the clients can file a claim and use the money from the bond to correct these issues.
• An encroachment bond - The purpose of this bond is to protect the government, the public, and public property of projects that are taking place or may encroach on public or government property. If the public land has been altered, the project presents a danger to the public, or the property is damaged, a claim can be filed against the contractor to repay for the damage done to the government, public, or property.

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