Lottery bonds are required in most states of lottery ticket sellers or those who plan to offer lottery machines. These types of bonds are also called lotto bonds or lottery machine bonds. States require them to protect the public from fraud and abuse surrounding lottery games or winnings.
Qualifying for a lotto bond is normally a quick and easy process, taking less time to approve than many other types of bonds. Applicants usually apply for these bonds while establishing or renewing a lottery retailer license. Although costs vary by state, those with better credit profiles receive the best rates.
What is a Lotto Bond?
A lottery bond, lotto bond, or lottery machine bond is a type of commercial surety bond that ensures lottery sellers are paying taxes on lottery sales, are not mishandling funds, and are not tampering with lottery games or machinery. This type of bond is required of lottery sellers in most states where lottery tickets are sold.
What is a Surety Bond?
A surety bond is like insurance and credit, combined. It is a legal agreement between an individual or organization, the entity requiring it, and a surety company that promises the surety company will pay if a valid claim is made on a bond.
How Do They Work?
If the individual or organization that purchased the surety fails to perform as promised and does not adhere to applicable laws and regulations, a claim can be made on the surety bond by the requiring party, in this case, by the state. The surety company will then pay the state, provided the claim is found to be valid. The bond purchaser is then responsible for repaying the surety company for the claim that was paid.
For instance, if a lotto seller misappropriates lottery monies, fails to pay taxes, or tampers with lottery games or machinery, the state can file a claim on the bond. If the claim is deemed to be valid, then the bonding company will pay their state up to the full face value of a bond. The seller is then responsible for replaying the bonding company.
Of course, it is always best to avoid claims. Besides the possible legal repercussions for tampering with lottery sales or equipment, bonds will become more expensive when claims have been made in the past with the same company. If enough claims are validated, then it could become impossible to become bonded under the same company name at all in the future.
What Could Cause a Claim on a Bond Lottery?
Lottery machine bonds ensure that the lotto is fair for everyone and that all relevant lottery regulations are being followed by the seller. Failure to adhere to applicable regulations or failure to pay taxes are the most common reasons why a claim could be made by the state.
For example, sellers are often required to provide informational materials to consumers. Failure to do so, where required, could result in a unnecessary claim being made against the bond. Failure to let consumers know when a lotto machine is malfunctioning could also lead to a potential claim on a bond.
Sellers are also required to allocate and maintain a certain amount of funds to be able to pay lottery winners, up to a certain amount. If a consumer cannot cash in on a lotto ticket within that amount, due to the seller not having allocated funds, then the consumer can report this to the state’s lottery commission. The state can them make a claim on the bond for full payment.
Sellers are also required to pay certain taxes on lottery sales. Failure to do so can result in claims being filed by your state.
How Much Does a Bond Lottery Cost?
The total cost of a bond depends on a company’s or individual’s credit profile, business strength, and the total bond amount required by your state.
Lotto bond prices are a percentage of the total bond amount. This is the equivalent of paying a premium on an insurance policy. The full bond amount required is set by state authorities and varies by state. Contact NFP Surety or your state’s lottery commission to find out the full bond amount required by your state.
Prices of lottery bonds will also vary according to credit profile and the strength of the business purchasing it. Better credit profiles and companies with solid business track records will receive lower rates. That is, bonds will cost a lower percentage of the surety amount.
With good credit and a solid business, customers can qualify for rates as low as 1% of the total bond amount. Standard market rates vary between one and four percent. This means that, on a $20,000 bond, the purchaser will pay from $200 – $800 to obtain a lottery bond.
What About Bad Credit Lottery Bonds?
Surety by NFP issues bonds for all credit ratings, even for those rebuilding credit or with no credit. Applicants with challenged credit can expect bond prices to range from 5% – 15% of the full bond amount. Bonds might cost slightly more than someone with a stronger credit profile, but new rates will become available at renewal time each time credit improves.
Who Needs One?
Typical customers who need a lottery bond are gas stations and convenience stores. In states where they are required, anyone who plans to sell lottery tickets or install lottery machinery must obtain a lottery bond prior to selling tickets or operating the lotto machinery.
Although bonds are required in most states, not all states require one. Call NFP Surety or your state lottery commission to find out whether a lotto bond is required.
How Do I Get Bonded?
Contact Surety by NFP for all your lottery bond needs. You will be provided with a brief questionnaire, and then your personal or business credit will be evaluated. NFP Surety will shop your bond with dozens of underwriters to find you the best rate for your profile. Bonds can usually be issued within 24 – 48 hours of submitting an application.
How Long is a Lottery Bond Good?
Lottery bonds are normally renewed every several years as the lottery retailer license is renewed. The amount of time varies by the state. At the time of renewal, your bond history will be evaluated, and credit will be re-evaluated.
Let’s wrap this up!
Bond Lottery ensure that the lottery is fair for all consumers and that the government collects all relevant taxes on sales and winnings. These bonds are legal agreements that are normally required at the time of license renewal for lottery sellers in most states.
Bond prices will vary by state. Credit history, business strength, and prior claims will all affect the price of any bond. Stronger profiles normally receive better rates, but rates can range anywhere from 1% to 15%. Bond Lottery rates are fairly low. We have the lowest in the business.
Surety by NFP provides lotto bonds even to those with challenged credit. As credit is being rebuilt, it is important to ensure that no claims are made on the purchased bond. Poor credit plus past claims may prevent any underwriter from backing the bond. Even clients with good credit should do all they can to avoid a claim, as this will affect the price of bonding in the future.
For more information about bond lottery, or for any of your bonding needs, contact Surety by NFP at firstname.lastname@example.org. Or, call us, at 1-855-999-7833.