California Bond of Qualifying Individual: A Comprehensive Guide
November 10th, 2020
This guide provides information for insurance agents to help contractors on the California Bond of Qualifying Individual (BQI Bond)
At a Glance:
- Average Cost: $85 – $375 per year, based on the applicant’s credit standing
- Bond Amount: $12,500
- Who Needs It: Required for the qualifying individual listed on a California Contractor License who is not an owner of the business
- Purpose: To ensure the public will receive compensation for any damages should the contractor fail to comply with contractor licensing law
- Who Regulates Contractors in California: The California Contractors State Licensing Board (CSLB)
Background
The California Contractors License Law and Reference Book require contractors operating in the state to obtain a contractor license with the CSLB. The California legislature enacted licensing laws and regulations to ensure that contractors engage in ethical business practices.
In order to provide financial security for the enforcement of the license law, contractors must post a cash deposit or purchase and maintain a $12,500 contractor’s qualifying individual surety bond (“BQI Bond”) for each qualifying individual that is not a 10% or more owner in the contracting business.
What is the Purpose of the California Qualifying Individual Bond?
California requires contractors to purchase a Contractor’s Qualifying Individual Bond for each qualifying individual as part of the application process for the Contractor License. The bond ensures that the public will receive compensation for financial harm if the qualifying individual fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the qualifying individual breaks licensing laws.
Does the Qualifying Individual Bond Cancel Out the Contractor License Bond?
No, all contractors must obtain the 15,000 Contractor License surety bond to be eligible for the California Contractor License.
Some contractors may also need to purchase a $100,000 LLC Employee Worker Bond, and in more rare cases, a Disciplinary Bond.
How Can an Insurance Agent Obtain a California Bond of Qualifying Individual Bond?
BondExchange makes obtaining a California BQI Bond easy. Simply login to your account and use our keyword search to find the “contractor” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.
At BondExchange, our 40 years of experience, leading technology, and access to markets ensure that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
Is a Credit Check Required for the California Qualifying Individual Bond?
Yes, surety companies will run a credit check on the owners of the company to determine eligibility and pricing for the California Bond of Qualifying Individual.
Contractors with excellent credit and work experience can expect to receive the best rates. Contractors with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the contractor’s credit.
How Much Does the California Bond of Qualifying Individual Cost?
The $12,500 California Contractor’s Qualifying Individual surety bond can cost anywhere between $85 to $375 per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. We also offer easy interest-free financing for premiums over $500. The chart below offers a quick reference for the approximate bond cost on the $12,500 bond requirement.
$12,500 California Bond of Qualifying Individual Cost
| Credit Score* | Bond Cost (1 year) |
|---|---|
| 720+ | $85 |
| 650 – 719 | $110 |
| 625 – 649 | $113 |
| 600 – 624 | $225 |
| 599 or below | $375 |
*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.
What is a Qualifying Individual?
A qualifying individual is the owner or employee of the contractor business that meets California’s experience and examination requirements to hold the license. The qualifier must have at least 4 years of experience in the trade and pass the licensing exams for each license class.
Who Can be a Qualifying Individual in California?
To be eligible as a qualifying individual, the individual must be (1) an owner of the business or (2) a full-time employee with managerial responsibilities. Below are the different types of qualifying individuals for each business type in California:
- Sole Ownership – Can be either the company owner or a responsible managing employee (RME)
- Partnership – Can be one of the general partners or an RME
- Corporation – Can be either a current officer, who will be known as the responsible managing officer (RMO) or an RME
- LLC – Can be either a responsible managing member, responsible managing manager, RMO, or an RME
***RMEs must be full-time employees who do not serve as a qualifying individual on any other active Contractor License issued through the CSLB. California considers anyone who works a minimum of 32 hours per week or at least 80% of the business’s operating hours (whichever is less) to be a full-time employee.***
When is the Bond of Qualifying Individual Required?
California requires qualifying individuals who are NOT owners of the business to purchase and file the $12,500 Bond of Qualifying Individual. To be considered an owner, the individual must own 10% or more of the business equity.
How Do California Contractors File Their Bond With The California CSLB?
Most surety companies will file the bond electronically with the CSLB on behalf of the contractor. When completing the bond form, the surety company should include the following information:
- Legal name, license number, and address of entity/individual(s) buying the bond
- Premium on the bond
- Surety company’s name, address, and phone number
- Bond amount
- Date the bond goes into effect
After the bond has been filed, contractors can check their license and bond status on the CSLB website.
How Can Contractors Avoid BQI Bond Claims in California?
To avoid claims on the Contractor’s Qualifying Individual Bond, contractors must follow all license regulations in the state, including some of the most important issues below that, tend to cause claims:
- Repair any and all damages caused to homeowners’ property
- Do not engage, or allow representatives of the business to engage, in any acts of fraud
What Other Insurance Products Can Agents Offer Contractors in California?
California requires all contractors with employees to obtain worker’s compensation insurance and LLC owners to obtain liability insurance. Bonds are our only business at BondExchange, so we do not issue any form of insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.
How Can Insurance Agents Prospect for California Contractor Customers?
California conveniently provides a public database to search contractors in the state. The database can be accessed here. Contact BondExchange for additional marketing resources.
