What is an Alarm System Installer Bond?

Alarm and fire system installer license bonds are a subset of the broader license bond category that must be filed with the government agency (city, county, or state) responsible for regulating burglar alarm, fire and sprinkler system installation in the contractor’s jurisdiction as a condition of licensure for most alarm system installers. 10 states handle alarm system installer licensing directly, while others allow local municipalities to regulate and license security system contractors.

Alarm system installer license bonds must be issued by insurance carriers admitted in the state where the government agency requiring the bond resides. The insurance carrier issuing any surety bond, such as an alarm system contractor bond, will also be referred to as the “surety company” or the “bond company”. Alarm system installer bonds refer to the installer as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.

Why is an Alarm System Installer bond required?

Alarm System Installers are required to purchase license bonds by state and local statutes to protect a government agency by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from an alarm system installer breaking general county/city/state ordinances. The surety company provides the government a guarantee (the surety bond) that the customers of an alarm system installer will receive payment for financial damages due to a violation of the statutes and regulations pertaining to alarm system installation up to a limit specified in the bond (“penal sum” or “bond amount”). The bond company also directly receives claims from the public and determines the validity of claims. Ultimately, alarm system installers are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face indefinite license suspension.

Alarm System Installer license bond violations triggering a bond payout may include an alarm system installer failing to uphold proper licensing when selling or installing alarm systems, installing or servicing alarm systems illegally, or installing alarm systems that are not up to specific county/city/state building codes.

How much does an Alarm System Installer bond cost?

Alarm System Installer bond generally costs between 1% - 5% with a minimum premium of $100.00.

Example: $10,000 Alarm System Installer Bond Cost

Credit Score Premium Rate Bond Cost
650 or above 1.0% $100
625-649 2.0% $200
600-624 2.5% $250
575-599 3.0% $300
550-575 5.0% $500
 

The actual cost of a specific alarm system installer bond can vary widely depending on the risk associated with legal precedent in the jurisdiction, the language in the bond form and the alarm system installer’s experience and creditworthiness. Alarm system installer bonds required by a local government (city or county) tend to have the lowest cost, while state requirements have potentially higher costs and/or more strict underwriting requirements.

Is a Credit Check Required for Alarm System Installer Bonds?

Credit checks are required for most Alarm system installer bonds required by state agencies. Alarm system installer bonds required by cities, townships or counties with bond amounts under $25,000 generally do not require a credit check to purchase the bond. Ultimately, the surety insurance company determines how it will underwrite and price a surety bond.

How does the wording in the bond form impact the cost of an Alarm System Installer bond?

The bond form is a legal document, a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and alarm system installer(principal). While many bond forms use similar language, each bond form can be customized by the government agency requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the contractor via higher bond premiums, stricter underwriting or collateral. The primary text to consider in an alarm system installer bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.

Aggregate Limits

Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (aggregate limit), usually the same amount as the penal sum. For example, a $15,000 alarm system installer bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Alarm system installer bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.

Cancellation Provisions

Most bonds contain a provision allowing for the surety company to cancel the bond (Cancellation Provision) by providing a notice to the alarm system installer and government agency requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (Cancellation Period). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the alarm system installer failing to pay premiums due, claim payouts, or material changes in the contractor's credit score. Alarm system installer bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.

Forfeiture Clause

Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (Forfeiture Clause). Alarm system installer bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.

Where can I find more information on a specific Alarm System Installer bond?

To find information on specific alarm system Installer bonds, select the state and use our search function to find any requirement across the country.

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