A contractor bond simply provides the state financial insurance that a contractor (principal) will complete a job as described. If a contractor violates the terms of his license, the underwriter of the contractor bond will be required to pay appropriate fines to the state.
Contractors who purchase a surety bond from a licensed agent can expect to pay an annual premium to keep the bond current. Many potential clients will request evidence of a current contractor bond number and license to ensure that they have recourse in the event that the project does not proceed as planned. In addition, various government projects require a contractor to have a current bond in place.