Iowa Contractor License Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Iowa contractor license bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

 

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What Is a Contractor License Bond?

Not all contractors working in Iowa must be licensed by the state and purchase a contractor license bond. But when an Iowa contractor license bond is mandatory, the purpose is to protect the licensing authority and the public against financial harm caused by a licensed contractor’s noncompliance with applicable laws, regulations, and/or building codes.

 

Who Needs One?

In Iowa, only plumbing and mechanical contractors are required to be licensed at the state level. Such licenses are issued by the Iowa Department of Health and Human Services. Candidates for licensure must purchase a contractor license surety bond for at least $5,000.

All contractors based in Iowa earning more than $2,000 a year in construction, including plumbing and mechanical contractors licensed by the Department of Health and Human Services, must register with the Iowa Division of Labor. No surety bond is required. However, out-of-state contractors aiming to do business in Iowa must register and provide the Division of Labor with a $25,000 surety bond.

Several local jurisdictions in Iowa also require surety bonds from contractors on public works projects. However, these are typically performance bonds rather than contractor license bonds.

How Does a Contractor License Bond Work?

There are three parties to an Iowa contractor license bond: the obligee, the principal, and the surety.

  • In most states, the government licensing authority requiring the bond is listed as the “obligee” but in Iowa, the obligee for the bond must be listed as the customers of the principal, using language such as “licensee’s Iowa customers” or “person(s) injured by Principal’s breach of construction contract.”
  • The contractor purchasing the bond is called the “principal.”
  • The bond’s guarantor is referred to as the “surety.”

Any violation of the terms of the surety bond agreement, such as failing to meet local building codes or defaulting on a construction contract, can result in the affected customer filing a claim against the bond. The bond allows the injured party to be compensated for monetary damages. The surety investigates each claim to make sure it is valid, and the principal is legally obligated to pay all valid claims.

The surety, in guaranteeing an Iowa contractor license bond, is agreeing to extend credit to the principal if the principal cannot pay a claim immediately. The surety will pay the claim initially as a loan to the principal, which the principal must repay within a certain amount of time. If the debt is not repaid on schedule, the surety can take legal action against the principal to recover the funds.

How Much Does It Cost?

The cost of an Iowa contractor license bond is the product of multiplying two factors—the amount of the bond and the bond’s premium rate. The premium rate is determined through the surety’s underwriting process, which aims to assess the risk of the surety not being repaid for claims paid on the surety’s behalf. The underwriters rely heavily on the principal’s personal credit score as a measure of that risk.

A high credit score is regarded as a sign of low risk for the surety and results in a low premium rate. However, a low credit score is regarded as an indicator of high risk, which warrants a higher premium rate. A well-qualified principal usually pays a premium rate between 1% and 3%.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Iowa contractor license bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

 

CONTACT US FOR A

FREE CONSTRUCTION BOND QUOTE

What Is a Contractor License Bond?

Not all contractors working in Iowa must be licensed by the state and purchase a contractor license bond. But when an Iowa contractor license bond is mandatory, the purpose is to protect the licensing authority and the public against financial harm caused by a licensed contractor’s noncompliance with applicable laws, regulations, and/or building codes.

 

In Iowa, only plumbing and mechanical contractors are required to be licensed at the state level. Such licenses are issued by the Iowa Department of Health and Human Services. Candidates for licensure must purchase a contractor license surety bond for at least $5,000.

All contractors based in Iowa earning more than $2,000 a year in construction, including plumbing and mechanical contractors licensed by the Department of Health and Human Services, must register with the Iowa Division of Labor. No surety bond is required. However, out-of-state contractors aiming to do business in Iowa must register and provide the Division of Labor with a $25,000 surety bond.

Several local jurisdictions in Iowa also require surety bonds from contractors on public works projects. However, these are typically performance bonds rather than contractor license bonds.

There are three parties to an Iowa contractor license bond: the obligee, the principal, and the surety.

  • In most states, the government licensing authority requiring the bond is listed as the “obligee” but in Iowa, the obligee for the bond must be listed as the customers of the principal, using language such as “licensee’s Iowa customers” or “person(s) injured by Principal’s breach of construction contract.”
  • The contractor purchasing the bond is called the “principal.”
  • The bond’s guarantor is referred to as the “surety.”

Any violation of the terms of the surety bond agreement, such as failing to meet local building codes or defaulting on a construction contract, can result in the affected customer filing a claim against the bond. The bond allows the injured party to be compensated for monetary damages. The surety investigates each claim to make sure it is valid, and the principal is legally obligated to pay all valid claims.

The surety, in guaranteeing an Iowa contractor license bond, is agreeing to extend credit to the principal if the principal cannot pay a claim immediately. The surety will pay the claim initially as a loan to the principal, which the principal must repay within a certain amount of time. If the debt is not repaid on schedule, the surety can take legal action against the principal to recover the funds.

The cost of an Iowa contractor license bond is the product of multiplying two factors—the amount of the bond and the bond’s premium rate. The premium rate is determined through the surety’s underwriting process, which aims to assess the risk of the surety not being repaid for claims paid on the surety’s behalf. The underwriters rely heavily on the principal’s personal credit score as a measure of that risk.

A high credit score is regarded as a sign of low risk for the surety and results in a low premium rate. However, a low credit score is regarded as an indicator of high risk, which warrants a higher premium rate. A well-qualified principal usually pays a premium rate between 1% and 3%.

 

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