Auto dealers have a lot of different insurance policies that they need to have in place in order to operate legally. This includes surety bonds. What do these bonds do? How do they work? And why are they needed? There are many things that go into purchasing a bond as an automotive dealer, but the bonds themselves are there for your company’s financial protection. Here’s what you need to know about them.
What Are Surety Bonds?
According to the law, an automotive dealer needs to have a $50,000 surety bond in place in order to operate a dealership, with an additional $25,000 bond necessary for each additional dealership that they operate. This means that if you have three dealerships, you need to have one primary $50,000 bond and two $25,000 additional surety bonds in place.
Thankfully, you don’t usually need to pay a monthly premium on these bonds. If your company has good credit, then you’ll only need to pay a small yearly premium on each of them. They can be renewed as necessary every single year.
What Do Surety Bonds Do?
So, what do surety bonds do? They protect the consumer, also known as your customer, from damages that may pop up regarding the title of a vehicle that you sold them. When they buy the car, the lienholder hangs onto the title, unless they purchase the car outright in cash. Should something go wrong with the title, making it unclear and unavailable to be transferred from one party to the next, the surety bond is called in, providing the vehicle purchaser with money to compensate for the title damages. These funds can also be used to clear up any issues with the title, allowing the new owner to take the title free and clear.
What Do You Need to Get a Surety Bond?
Although it widely depends on the insurance company or bond company that you go through, there are some things that they’ll need in order to allow you to purchase the bonds. These include things like proof of your current insurance policies, including your garage insurance, liability insurance, business owner’s plan, and more.
They’ll also need to see your dealer’s license, articles of incorporation for your company, your dealer license application (just in case), and of course, you’ll need to pay the fees associated with your surety bond. You may have to produce a number of other things as well, depending on whether or not you’re a new auto dealership owner, if your company’s credit is bad, or if you’ve had to call in and reimburse other surety bonds in the past. Again, this all depends on the insurance or bond company that you go through, so it can vary quite a bit.
Have Questions? Contact Charlotte Insurance
Want to learn more about surety bonds for auto dealers? Contact Charlotte Insurance. Our agents can explore and explain all available options and put together the insurance coverage plan your business needs.