Insurance Bonds (more commonly called surety bonds) can either be continuous or renewable. In this short article, we will explain the difference between the two and answer the question "how long does a insurance bond remain in effect?"
Insurance Bond Terms
#1: Insurance Bond Effective Date
- The effective date is the date on which the surety bond becomes active. Coverage is not provided for the time before the effective date. Many governing authorities consider the effective date to be the date at which they receive the original bond.
- The effective date will be listed on your bond.
#2: Insurance Bond Term
- The surety bond term is the length of time the bond remains valid. It starts when the effective date begins and ends when the bond expires or is cancelled.
- The surety bond term will be stated in your bond.
- A surety bond endorsement (or rider) is a form that is attached to the original surety bond to add to, alter, or vary its contents. Riders/Endorsements apply to both continuous and renewable bonds.
- An example of a surety bond endorsement or rider would be if you need to change the name on your bond. Instead of issuing an entirely new surety bond, the surety company would just issue a name change rider. The rider would say show the name being changed from X to Y.
- You can request a rider through the surety company who issued your bond.
How Long "Renewable Bonds" Last
Renewable bonds remain in effect for the term explicitly stated on the bond.
Renewable bonds have an expiration date upon which the bond will cease to provide coverage. This date or time frame will be clearly disclosed in all renewable bonds.
Surety bonds that have a set renewable terms (1-4 years is customary) require Principals to reapply. Surety companies will often redo their underwriting to account for any changes in the applicant's credit score, business performance, or personal financials since the previous bond term.
If you reapply through your previous surety provider, the renewal process is often quick and painless. A competent surety company can have your terms in minutes, but at the longest, it shouldn’t take more than one business day.
You will have to pay for your bond again when you renew.
At any time when a Principal has become ineligible for a surety bond, the Principal can request to have a surety bond reinstated.
A reinstatement can only be granted if the Surety has been fully repaid for any surety bond claims, or the Principal provides collateral acceptable to the Surety which has a liquidation value at least the amount of the bond claim.
Any surety bond applications submitted after reinstatement of the Principal’s eligibility will be held the most stringent underwriting by the Surety.
#4: Bond Replacement
A replacement bond replaces the original bond and is retroactively effective from the date of the issuance of the original insurance bond.
How Long "Continuous Bonds" Last
Continuous surety bonds remain in effect until cancelled. The majority of surety bonds fall into this category.
Most insurance bond indemnity agreements contain a cancellation clause that says something to the effect of “The Surety may cancel this insurance bond and be relieved of further liability for work performed by the Principal on contracts entered after cancellation by giving 30 days’ written notice to the Principal and the <insert Governing Body name here>."
Essentially, this means the bond can be cancelled by the surety company. Some bonds do not have a cancellation clause, though, so the only way they can be cancelled is upon receipt of a letter of release from the Obligee.
Many times, bonds cannot be cancelled unless the surety receives back the original bond, renewal bond, or continuation certificate.
Probate bonds usually require a court order to terminate the bond.
So the short answer to "How long does an Insurance Bond remain in effect?" is "It depends." Renewable bonds remain in effect for the term explicitly stated on the bond. Continous bonds remain in effect indefinitely or until cancelled.