It is pretty common to come across the term bonded and insured. In most cases, it may require you to take out one of the two for your business. Perhaps even both. Some customers can be particular and prefer to work with businesses that meet both requirements.

So what does it mean to be bonded, and what does it mean to be insured? This article delves into both, so you will have a full understanding of the two.

What Does It Mean To Be Insured?

As a business owner, it is best to have your company insured. This means you get to transfer any potential risks your business may face to a third party. What insurance does is protects your business from liabilities such as theft and lawsuits, and incidences such as fire.

An insurance policy pays for any liability costs, such as an employee getting injured while working for a contractor. It also covers property damage. You should know that your insurance policy will not compensate you in the event of faulty work or negligence.

Most customers prefer contractors with an insurance policy. This is because the liability of someone getting injured does not befall them.

A general liability insurance policy can help your business’ financial position. The policy caters to lawyer costs and legal fees if you get sued. This way you don’t incur out-of-pocket costs.

What Does Bonded Mean?

When a business is bonded, it has purchased a surety bond. A surety bond protects the business from liabilities because of working with a third party. For example, if you hire a contractor for construction, you can take out a surety bond that protects you from theft, damage, or incomplete works.

A surety bond is typically an agreement that takes place between three parties; the principal, the obligee, and the surety.

The Principal

This is the company that buys the bond. It is primarily the business that provides its service to others. A good example is a construction company.

The Obligee

The obligee can be a municipal institution or the state. The obligee mandates the requirement of bonds by the principal. In most cases, the oblige grants permission to the principal to do business after obtaining a bond.

The Surety

The surety refers to the company that issues out the bond. In most cases, sureties are insurance companies.

If damage occurs while the principal is at work, they can apply for compensation from the surety. A bond protects a business from negligence within the workplace. For example, if someone partially completed the work, the obligee can file a claim to the surety for the cost of finishing the work under a different contractor.

Main Difference Between Being Bonded And Insured

Although the two seem similar, there is a thin difference between the two.

A bond protects a client from a loss after hiring a third party to carry out a particular task. At the same time, an insurance policy protects your business from financial losses resulting from damage or theft. Bonds relate to actions from third parties that can affect your business, whereas insurance policies safeguard your business from unforeseen losses.

Also, in case of loss or damage, the insurance company will compensate you at no cost. However, with a bond, the surety will pay for the claims to be reimbursed later by the principal.

What Is The Cost Of Getting A Bond Or Insurance?

Cost Of A Bond

Typically, for most bonds, you have to purchase them through premiums. You have to pay a percentage of the coverage amount you desire for fidelity bonds. This could be 0.5% to 1% of the amount.

A surety bond compares to loans. The main factor most sureties consider before issuing out a bond is your company’s credit history and financials. Since most sureties avoid issuing out payouts, they avoid parties with high claims.

Cost Of An Insurance Policy

The cost of an insurance policy varies with the value of your property, the type of policy you choose, your business size and revenue, and some of the unique potential risks your business could face.

A Guide To Being Bonded And Insured

A bond or an insurance policy is a necessity in any business. It is common to experience incidences and accidents when you least expect it, so it is best to protect yourself and your business from these tragic outcomes. As a business, you can visit the Small Business Administration to guarantee your surety bond.

For more information on bonds and insurance policies, read our blog post on how being bonded and insured helps complete projects.