Lottery Bonds: A Comprehensive Guide For Insurance Agents
This guide provides information for insurance agents to help their customers obtain Lottery bonds
What is a Lottery Bond?
Lottery bonds, sometimes referred to as lottery retailer or sales agent bonds, are government-required surety bonds that certain lottery retailers must purchase as a prerequisite to obtaining a lottery license. Lottery bonds are a type of financial guarantee bond that ensures regulatory agencies will not suffer a financial loss if the retailer fails to pay all funds owed. For example, if a lottery retailer fails to pay all funds owed to the obligee (entity requiring the bond) resulting from ticket sales, then the obligee can file a claim against the retailer’s bond to recover these funds.
Most states only require retailers who don’t meet the obligee’s creditworthiness or financial responsibility requirements to purchase a bond. Lottery bonds must remain active as long as the retailer is in business, unless the obligee explicitly states otherwise.
Unlike most insurance products, surety bonds protect a third party (the obligee) for acts that are violations of the law. When the surety company suffers a loss due to a retailer’s actions, the retailer must repay to the surety company any losses and sometimes court costs and other fees.
Who is Required to Purchase a Lottery Bond?
Most states require businesses that sell lottery tickets (retailers) to obtain a license, however, only a handful of states require all retailers to be bonded. In most states, only retailers who do not meet the obligee’s creditworthiness and financial responsibility requirements will be required to purchase a bond. After retailers submit their license application, obligees will conduct a credit check, and in some cases review business financial statements, to determine whether or not the retailer must be bonded.
Who Regulates Lottery Bonds?
State government agencies regulate lottery bonds based on license law written by each state’s legislature. Governments enforce the law by instituting licensing requirements like sales quotas and a surety bond. The surety bond ensures the government agency will be compensated if the lottery retailer fails to remit all funds owed.
How Can an Insurance Agent Obtain a Lottery Surety Bond?
BondExchange makes obtaining a Lottery surety bond easy. Simply log in to your account and use our keyword search to find the “lottery” bond in our database. Don’t have a login? Gain access now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone at (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 ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
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Is a Credit Check Required to Purchase a Lottery Bond?
Yes, surety underwriters will review your customer’s personal credit to determine their eligibility and rate for lottery bonds. Most carriers use a “soft check”, so the credit review will not affect the applicant’s credit. Underwriters will consider other aspects of the retailer’s application, but credit scores and their underlying data remain the primary underwriting tool for lottery bonds.
How Much Does a Lottery Bond Cost?
Lottery bonds can cost anywhere between 1.5% to 20% of the bond amount per year. Why such a large spread? Insurance companies determine the rate based on a number of factors including your customer’s personal credit and business experience.
Lottery retailers with the best credit and business experience can expect to pay the lowest rates, while retailers with poor credit will pay higher rates. The chart below offers a quick reference for the approximate bond cost on a $15,000 Lottery bond
$15,000 Lottery Bond Cost
| Credit Score | Bond Cost (1 year) | Bond Cost (1 month) |
|---|---|---|
| 800+ | $225 | $23 |
| 650 – 799 | $400 | $40 |
| 625 – 649 | $750 | $75 |
| 600 – 624 | $1,500 | $150 |
| 550 – 599 | $3,000 | $300 |
*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.
Do Surety Companies Offer Financing on Lottery Bonds?
Most lottery bond premiums can be financed. To be eligible, the bond must have a cancellation provision in the bond form. Premium finance companies usually charge a finance fee and interest rate to provide the financing. BondExchange offers in-house payment plans for bond premiums over $500. Our payment plans are interest-free and can be set up instantly online with a customer credit card and a few clicks. We offer this option automatically for bonds that meet the eligibility requirements.
BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.
What Information is Collected for a Lottery Bond Application?
Surety company underwriters will collect and review the following information to determine eligibility and rate for a lottery bond:
- Retailer’s legal name and DBA if applicable
- Retailer’s address and phone number
- Years in business
- Contact phone number
- Owner(s) name, address, and social security number
For larger bond amounts (usually over $50,000), some surety companies will review the business’s financial statements. Underwriters will be looking for businesses with sufficient working capital (current assets – current liabilities) and a history of profitability.
How Do Lottery Retailers File Their Bonds?
Surety bond companies will provide the retailer with a completed surety bond to be filed with the relevant government agency. Most states require the original bond with a raised surety company seal to be filed by mail.
Surety companies should include the following information on most bond forms:
- Legal name and address of entity/individual(s) buying the bond
- Surety company’s name, address and phone number
- Bond amount
- Signatures of the surety representative
- Date the bond is effective and issued
- Corporate seal of the surety company
- Power of Attorney
What Can Lottery Retailers Do to Avoid Claims Against Their Bond?
To avoid claims against their bond, lottery retailers must ensure they remit all funds owed to the government agency that issued them their license. Most states require retailers to sign an electronic funds transfer (EFT) form authorizing the obligee to withdraw all funds owed from the retailer’s bank account. To best protect themselves from bond claims, retailers should ensure that they are depositing all sales revenue into the bank account on file with the obligee.
What Other Insurance Products Can Agents Offer Lottery Retailers?
Most reputable lottery retailers will purchase liability insurance. Bonds are our only business at BondExchange, so we do not issue any other forms of insurance, but our agents often utilize brokers on these lines. A list of brokers in the lottery retailer space can be found here.
Which States Require Lottery Retailers to Purchase a Bond?
19 states and the District of Columbia require certain lottery retailers to purchase a surety bond.
