Health Club Bonds

Health Club Bonds

Learn all about health club bonds, and request a quote from Surety Bond Professionals today!

What Are They?

Health Club bonds are required by the state as a condition for obtaining a license to operate, which makes them a type of license and permit surety bond. Their purpose is to protect consumers from financial loss due to the illegal actions of a health club. For instance, club members may file a claim against the bond in the event that a health club goes belly up without refunding the balance of membership fees.

Who Needs Them?

Different states may define “health club” differently. While you may think of a health club as being a facility that offers fitness training, other types of health organizations may also fall under the heading of “health club” in the view of the state where you reside. Any health organization that sells prepaid memberships may be required to purchase a health club bond in order to become licensed or renew an existing license.

Health clubs that maintain more than one location may need to purchase a separate bond for each site.

How Do They Work?

There are three parties that become legally bound together through the bond:

  • The state agency that requires the purchase of the bond is known as the “obligee.”
  • The health club owner required to purchase the bond is the “principal.”
  • The company that underwrites and issues the bond is called the “surety.”

The obligee sets the required bond amount, which may vary from one club to another based on the length of the memberships offered. It takes a larger bond amount to protect people who have purchased a three-year membership than it does to provide protection for members who opted for a one-year package.

What Happens When A Claim Is Filed?

So, what happens if members show up one day and find the doors locked? If a health club has become insolvent or closed for any other reason without refunding the remainder of fees paid in advance by members, those members can file a claim against the health club bond.

The surety will investigate and try to negotiate a settlement, if possible, in hopes that the principal will refund membership fees voluntarily. If that attempt fails, the surety will pay the claims for the convenience of the claimants.

But that’s not the end of the story. The principal is legally responsible for paying claims, not the surety. If the surety provided an advanced payment, they will then pursue the principal for reimbursement of the full amount paid out on claims.

What Do They Cost?

The cost of a health club bond is a small percentage of the required bond amount. That percentage, referred to as the premium rate, is set by the surety based on an applicant’s personal credit score and financial condition. For health club owners with good credit, the premium rate is typically between 1% and 3% of the required bond amount. Applicants with poor credit will pay on the higher end of this scale.

Get A Quote

If you’re opening a new health club or need to renew your license, contact Surety Bond Professionals today. We’ll work to get you the best deal possible on the bonds you need.