Insurance Broker Bonds 101: What To Know About Freight Broker Bonds

Insurance Broker Bonds 101: What To Know About Freight Broker Bonds

A freight broker bond (BMC-84) is required by the FMCSA for freight brokers before receiving a freight broker license.

An insurance broker bond is a promise that brokers will develop legal strategies to assist clients and abide by laws in the state of practice. The surety bond protects clients from potential fraudulent acts like price manipulation, or brokers falsifying information on claims.

The cost of your freight broker bond is a percentage of the $75,000 bond amount, typically 2-4% of the bond amount.  

Like with new entrant commercial trucking insurance, if you have a low credit score or a new broker business, you will pay a higher premium. Freight brokers may be able to get a lower rate after a year or two of business without having any claims filed against the bond or if your credit score improves before you renew.

Freight broker bonds vs trusts

It is better to secure a freight broker bond (BMC-84) instead of setting up a trust (BMC-85) because all assets remain available to your business instead of being tied up in the trust. This especially benefits smaller or less experienced carriers with already limited assets.

Additionally, the surety company thoroughly investigates claims made against the bond prior to making a claim payment, shares the liability, and will do their best to mitigate claims made against the bond. However, trust companies will often pay claims after little or no investigation because they have no liability.

Finally, placing $75,000 into a trust fund requires full collateral up front, so it is typically large brokers with established financial stability that choose this option.

How to become a freight broker or freight forwarder

In order to become a licensed freight broker, applicants must take several additional steps required by the FMCSA:

  • file OP-1 Application for Motor Property Carrier and Broker Authority
  • provide proof of insurance coverage
  • submit BOC-3 (Designation of Process Agent)
  • filing fee: $300

For freight forwarders, the FMCSA requires additional insurance, to be submitted on the following forms:

  • liability insurance: BMC-91 or BMC-91x (if insurance is provided by multiple companies)
    • freight: $750,000-$5,000,000 minimum insurance (depends on cargo)
    • vehicles weighing less than 10,001 lbs. transporting non-hazardous freight: $300,000
    • passenger vehicles: $5,000,000
    • passenger vehicles with capacity of 15 people or fewer: $1,500,000
  • proof of cargo insurance (if you are a household goods freight forwarder): BMC-34 or BMC-83
    • minimum $5,000 per vehicle
    • minimum $10,000 per occurrence

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