How to Obtain a Sweepstakes Bond
This week’s blog was contributed by one of our Account Supervisors, Cheryl Thornton.
A bond, also known as a surety bond, is a financial instrument that protects the public from fraud or credit losses by guaranteeing payment and/or awarding of the prizes offered. If a Sweepstakes meets the requirements of Registration in the appropriate States (currently New York and Florida have Registration and Surety Bond Filing requirements that apply to Sweepstakes wherein the total prize structure exceeds $5,000), then a bond in the amount of the total prize structure offered must be obtained from the Sponsor to be filed along with the required Registration documents.
Sponsors may obtain a Surety Bond(s) by contacting their insurance agent or broker. The insurance agent or broker will engage an underwriter to prepare the proper documentation for the Sponsor to execute with appropriate signatures and financial obligations.
Keep in mind that in order for the underwriter to approve this request the agent will also have to provide them with the Official Rules governing the Sweepstakes for their review. The types of prizes, length of time of the sweepstakes, and the client’s credit worthiness are all considered when an insurance company determines whether it will underwrite the promotion.
When it comes to underwriting, cash prizes undergo stricter scrutiny than product prizes. Most sweepstakes are conducted for a short period of time and this is viewed favorably by the underwriters. With higher levels of prize values — such as those over $100,000 — the underwriter may review credit reports, request financial statements, or require a signed indemnity agreement. Once the underwriting has been completed, the agent will mail the bonds to the insurance agent or broker who will then submit it to the Sponsor who will need to have an officer of the Company sign the bonds.
Once the bonds are properly executed, the Sponsor sends the original bonds to Marden-Kane in order for us to proceed with the registration of the Sweepstakes. The fees for obtaining bonds vary and the time to process the documents can be lengthy so it is best to start the process as early as possible in order to ensure that your Sweepstakes is registered on time. Also, Sponsors may elect to engage in our bond procurement services on their behalf. Once a promotion is over and the release acknowledgement is received from the appropriate States, a copy of the release is sent to the insurance company in order to terminate the bond and any further financial obligations from the Sponsor.
Do you want to learn more? Then contact Marden-Kane. We are here to help you with your promotional needs.
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