Bonded vs. Insured: Who Needs Both?

The difference between bonded and insured is that a surety bond serves the third party, while insurance can protect both the policyholder and the claimants. To say that you are bonded means that you purchased a bond that offers a limited guarantee to an obligee (client). Meanwhile, having insurance means you bought an insurance policy, which will usually have a higher limit than a bond, protects you against loss and liability.

Small businesses in the retail and restaurant industry do not need bonds. However, those in construction, service technicians, and professional services should consider both.

What is a bond?

A surety bond is an agreement between a company (known as the surety bond) to secure the obligations of another company or individual (known as the principal) for work performed on behalf of or for a third party (known as the obligee). In essence, the bond is a promise that if the principal fails to comply, the bond will make a payment to compensate the affected party. In this way, the bond acts as a guarantee to the obligee that the principal is addressing the risk.

For example, the owner of a construction project hires a general contractor to build a warehouse. The homeowner needs the project to be completed by a specific date and requires the general contractor to purchase a bond stating that the project will be completed on time.

Bail provides multiple positive benefits. The owner is satisfied that the general contractor will be motivated to complete the project on time and, if he is late, he will be compensated. The general contractor is motivated to make sure the project is completed on time because he doesn’t want to pay the warranty.

Just as there are different types of insurance policies, there are different types of bonds. There are two main categories of bonds: contract bonds and commercial bonds:

1. Bond Contract guarantee a specific contract, usually found in the construction industry. There are different types of contract bonuses:

  • performance bonds ensure project completion as outlined in the contract
  • offer bonuses ensuring that a job proposal was made in good faith and is often accompanied by a surety bond agreement, which means that if you are awarded the job, you will purchase the appropriate sureties, such as a performance bond
  • Supply Bonds ensure that suppliers will provide the supplies and materials required in a contract
  • maintenance bonuses are similar to a warranty and defective warranty work will be addressed for some time after the work has been completed
  • subdivision bonds ensure that work required by government agencies will be completed properly, on time, and in accordance with local laws

2. Trade Bonds They guarantee the terms of the voucher and are purchased by companies such as car dealers, travel agencies and notaries.

There are other types of bonds that are not bonds, such as fidelity bonds and surety bonds. Loyalty bonds can also be purchased by a company to protect against theft.

What is insurance?

One difference between insured and bonded is that you buy a bond for the benefit of another, while insurance is bought to protect yourself. Insurance is a way to protect your business from financial loss. The loss can be due to own incidents, such as theft, or third party liability claims and are handled within the limits of the policy. Specifically, the insurance protects against general liability, professional liability, business property damage, and loss of income claims.

An insurance agreement sets out the terms between the policy holder and the insurer. In exchange for a premium paid by the policyholder, the insurer agrees to provide the protection outlined in the policy.

Liability is third party coverage, which means it protects your business from third parties who claim they were harmed due to your business’s negligence. Two key forms of liability insurance business owners should consider are:

  1. Overall responsibility protects your business against claims that you accidentally injured someone or damaged their property. A common claim is someone slipping and falling at your business and claiming an injury as a result.
  2. professional liability protects your business from claims alleging that you failed to perform in accordance with a contract and the other party suffered financial hardship as a result. An example is your professional advice that led to a loss of money for the client.

Who needs a bond?

Certain professions, such as HVAC technicians, require bonds to become licensed. They are common in the construction industry. Other professional services, such as tax preparers, notaries, mortgage lenders, and car dealers, are often required to post bonds.

To get a bonus, a broker like CoverWallet is a good place to start. It is an online broker where after answering a few questions you can get an online quote and be covered in minutes.

Who needs liability insurance?

All companies must consider liability. Depending on the industry and state, a general liability policy may be required. The cost of not having insurance is too risky to ignore. The average cost of a slip and fall claim ranges from $10,000 to $50,000. In 2020, the average settlement awarded for product liability claims was more than $7 million.

The Hartford, our best small business insurance provider, offers general liability insurance for an average of $88 per month. You can provide an online quote with coverage tailored to your industry in just minutes.

Who needs both?

If you work in construction, maintenance, or financial services, you may need to be insured and bonded. Check with the state board that governs your industry. Many contracts, especially in construction or with government agencies, will require both a surety bond and insurance.

While being linked and insured has its own unique benefits, there are several advantages to having both:

  • Expand your coverage because bonds and insurance cover different scenarios
  • Give customers confidence in your company.
  • Provide multiple guarantees: you will comply with the contractual obligations of the job and control all risks. If something goes wrong, whether it’s the project running overtime or property damage, coverage is available.

Frequently asked questions (FAQ)

How much does a bond cost?

A bond is generally 1% to 2% of the total cost of the bond. However, depending on your credit and the risk of the contract, the price can increase up to 15% or more. So for a $10,000 bond, the price would be $100 to $200. Keep in mind that if the bondsman has to pay the bond, he will collect the full principal amount.

What is a Loyalty Bonus?

A loyalty bond is a bond that businesses can purchase to protect themselves from employee theft or to protect customers from employee theft of their property. This is an option for companies interested in greater protection against employee dishonesty.

What does it mean to be united?

The term “bonded” simply means that you are the principal and have obtained a bond from a surety. This can be advantageous and, in some states or industries, required to obtain your license.

Bottom line

A surety bond is a guarantee with financial implications involving three parties, while insurance is a contract between two parties for coverage related to specific losses. Both bonds and insurance protect against loss. It is better to be bonded and insured than to be unprotected from financial loss.

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