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Utility Bond

A Guide to Utility Deposit Bonds

A utility bond is a type of financial guarantee ensuring a person or organization will pay for utilities on time. Most utility companies require customers who are projected to use a large volume of utilities to be bonded before utility services are turned on. Unlike many other surety bonds that exist to protect consumers, utility bonds serve to protect utility companies by ensuring that the company receives payment.

How much does a utility bond cost?

Unlike other surety bonds, utility bond amounts are set on a per-case basis, meaning that the cost of a utility bond can vary significantly. However, it is a reasonable assumption that most applicants will pay between 1-10% of the total bond amount.

For more information on utility bonds in your area, select your state on the map or give one of our surety experts a call at 1 (800) 308-4358.

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What are utility bond requirements?

Government rules and regulations require many businesses in many different industries to obtain license and permit bonds. Meanwhile, utility bonds are required by specific parties prior to performing tasks, such as turning on utilities. While general liability insurance is required of these companies, commercial insurance usually isn't.

What do utility bonds do?

Utility bonds are often required of utility customers that are expected to use large amounts of energy, such as manufacturing companies, restaurants, or campgrounds. It’s usually up to the utility company to determine which of its customers need to purchase a bond. The bond ensures that utility consumers will pay their bill in full and on time every month. If they fail to pay on time, the utility company can file a claim against the bond to receive the payment. The surety will pay the amount of the claim and the bonded party (the consumer who holds the bond) must reimburse the surety for the claim amount.

Surety Bonds vs. Insurance

When applying for a surety bond it is important to recognize its differences from commercial insurance. Surety bonds protect the interests and investments of the consumer, while commercial insurance protects businesses from lawsuits.

The main difference between insurance and surety bonds is which party is financially restored. For instance, insurance returns the principal (the insured or bonded party) to where they were before the claim. Surety bonds return the bonding company to the financial condition it was in prior to the claim.

For a more in-depth explanation of surety bonds and insurance, feel free to visit our education center.

Your insurance premium has a lot to do with the amount of your deductible. The higher your deductible is, the lower your premium will be. After you pay the deductible the insurance company pays the rest, within the limits of the policy. There is no deductible with a surety bond. If a claim is made and the bond company pays for it, then the principal must pay the full amount back to the company.