What Does a Contractor License Bond Cover?

A contractor license bond is required by your states licensing board.

The bond is coverage for, and benefits your customers (project owners). It's protection for them.

Here are examples of what the contractor license bond covers:

• Failing to meet the terms of a project contract
• Taking a deposit and abandoning the project
• Altering the terms of a contract without notifying the customer
• Replacing materials with cheaper alternatives to pocket the difference without the customer knowing
• Failing to follow state building codes
• Neglecting to pay subcontractors for work completed

These are some of the main acts of contractor fraud that the license bond covers.

What Happens If These Fraudulent Actions Happen?

If a contractor is found guilty of these or similar actions, the customer can make a claim against the contractor's license surety bond.

This claim will be investigated by the insurance (surety) company that underwrote the license surety bond.

If the surety company finds the claim to be legitimate, they will pay the claim amount. Keep in mind, they don't want to pay the claim so they will fight for you.

The amount paid out is limited to the contractor license bond amount.

Examples of common license bond amounts include:

• California CSLB license bond - $25,000
• Oregon contractor license bond - Range from $15,000 to $80,000
• Washington contractor license bond - Range from $4,000 to $30,000
• South Carolina contractor license bond - Range from $5,000 to $300,000
• New York home improvement contractors - Range from $10,000 to $25,000

Recap: What Does a Contractor Bond Cover?

It's used as protection (or coverage) for purposeful fraudulent behavior by a licensed contractor against a customer.

The contractor license bond is coverage you're required to purchase for the protection of your customers.

In some cases it can also cover for the purposeful non-payment of sales taxes collected for completed projects. This is determined on a state by state basis.