Why Surety Companies Need Your Social Security Number
Picture this: you’re looking to get a surety bond, and when you start the application, they ask for your social security number. Confused, you ask your insurance agent why they need it.
“Why do I have to give my social security number for surety bond?” you wonder. The agent might just say, “Because the insurance company needs it.” Not the most satisfying answer, right? You still give them your info because you need the bond, but the question hangs in the air, bugging both you and your agent. You might even get frustrated and ditch the application, only to reluctantly come back later to give the information.
We see these situations all the time, so we’ve written this article to help explain why surety companies sometimes ask for social security numbers.
What makes surety bonds special?
Well, quite a bit.
Surety bonds, unlike other insurances, don’t protect the person buying the bond. Instead, they protect the person or entity that requires the bond. For example, auto dealers need a bond for a business license, but the bond doesn’t protect the dealer—it protects the state Department of Motor Vehicles and the dealer’s customers. And if a claim is made, the dealer has to pay back the surety company for all the costs (this is called indemnification).
All surety bonds are indemnified, meaning whoever buys the bond has to repay the surety company for valid claims. Claims only happen if the person buying the bond commits fraud or acts unethically.
Think of surety bonds as a credit line that you have to pay back if you use it.
It’s All About the Risk Surety bonds are unique, so they have a different way of figuring out if they should give you a bond. When they decide, they look at two things:
- How likely are you to repay them for valid claims.
- How likely is a valid claim that will happen.
Besides looking at your financial statements (they do this for riskier bonds), the best way to see if you’ll repay them is by checking your credit history. So, surety companies do soft credit checks (which don’t affect your credit) to see if you’re likely to pay them back if there’s a claim.
The Big Reveal: To check your credit, surety companies need your social security number. Credit bureaus use it to make a report that shows your loan and payment history.
So, there you have it—the answer to why surety companies ask you for your social security number. It’s necessary to check your eligibility for the bond you want.
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