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When buying insurance, some people might choose to just buy the “bonded” option, which is a type of property insurance. However, there are many benefits to having both an “insured” and a “bonded,” so it’s important for consumers to understand the difference between them.
Bonded and insured are two different types of insurance. Bond is a type of insurance that covers the risk in case of damage or loss. Insured is a type of insurance that protects against financial loss. Read more in detail here: how to get bonded and insured.
It’s not uncommon to hear a contractor claim to be bonded and insured, but exactly what this entails might be a bit of a mystery. You are bonded if you have obtained a surety bond that provides customers with limited assurances. When you say you’re insured, it indicates you have a policy that protects you against accidents and liabilities, generally with higher limits than bonds.
One important distinction to be aware of as a business owner is that when a bond pays a customer, you must repay the bond firm. Covered claim profits are not recoverable by the insurance provider as long as you pay your premiums.
What is the definition of a bond?
A surety bond is an agreement by one firm to be accountable for the debts, defaults, or other types of failures of another company. A bond consists of three parties: a “surety” who guarantees the obligation of another party, the “principal,” on behalf of the customer, the “obligee.”
Bonds of Various Types
There are several Bonds of Various Types used by contractors and in construction:
- Bonds for contracts: A performance bond, also known as a bid bond, supply bond, maintenance bond, or subdivision bond, is a financial guarantee for a certain contract:
- Performance bonds ensure that the project is completed according to the contract’s specifications.
- Subcontractor and supplier payments are guaranteed by bid bonds.
- Supply bonds ensure that suppliers will deliver the goods and materials specified in a contract.
- Maintenance bonds: Guarantees that work on a project will be done for a certain amount of time after it is finished.
- Subdivision bonds: Ensures that work mandated by the government or municipality is executed correctly and on schedule.
- Commercial bonds: Provide a guarantee based on the bond form’s conditions, such as a notary bond, which protects the general public when a company executes notarial actions.
- Although not a surety bond, fidelity bonds are a common bond acquired by companies to safeguard against theft.
What Is Insurance and How Does It Work?
If a covered claim or event happens, insurance protects the policy limits. To obtain coverage, policyholders must pay an annual premium. In contrast to a surety bond, a company owner is not obligated to reimburse the claim proceeds as they would be in a bond claim.
General liability, professional liability, personal property, and revenue loss are all covered by insurance. Third parties that claim you are liable for their loss, whether it be property damage, physical injury, or personal injury damage, are covered by liability insurance.
Liability Insurance Types
Business owners often focus on two Liability Insurance Types:
- General liability insurance protects your company against third-party claims that you hurt someone or destroyed their property by accident. This is also known as “slip-and-fall” coverage.
- Professional liability insurance protects you against allegations that you didn’t fulfill a contract or operate in accordance with professional standards. It might be anything as simple as failing to execute a contract or offering someone bad professional advise.
4 Key Differences Between Bonded and Insured
There are several crucial things to consider when comparing bonds and insurance.
What Is the Purpose of a Surety Bond?
The licensure of several professions necessitates the posting of surety bonds. However, it is just a good idea for others to offer assurance to the general public that you are a professional. Clients place a lot of money on a contractor’s performance and professionalism, hence surety bonds are widespread in the construction sector. In certain businesses, such as tax preparation and notary services, a bond is required as part of the licensing procedure.
CoverWallet can assist you in finding a bond to safeguard your company. Its online system just takes a few details about you and your business in order to get a quotation promptly. In only a few minutes, you’ll be completely covered.
Go to CoverWallet.com.
Who Needs Liability Insurance in the First Place?
Businesses that interact with the public must have liability insurance. Even if it isn’t needed, small company owners risk being sued for tens of thousands of dollars in damages. A typical slip-and-fall lawsuit may cost a small company owner up to $20,000 in legal fees. The cost of an insurance, which is often between $300 and $500 per year for small firms, is definitely worth it.
Consider The Hartford if you’re looking for a general liability insurance coverage. It is a small company insurance specialist with plans targeted to your sector and your business requirements, starting at $300 per year for a business owner’s policy (BOP).
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Why Do Many Companies Require Both?
It makes sense to have both a bond and insurance. When a firm has both insurance and a bond, it gives customers a lot of trust. Businesses that do so ensure that tasks are finished on time and correctly, as well as providing much-needed protection against liability originating from on-the-job accidents.
It’s critical to recognize that not all bond coverages are the same as insurance coverages, which means they protect you against distinct risks. Insurance protects against third-party claims, whereas bonds protect against failing to satisfy contractual commitments.
Most business owners get general liability insurance as part of a business owner’s policy (BOP), which also covers theft or damage to corporate property in the case of a fire, burglary, or other covered loss. Having insurance might save you hundreds, if not millions, of dollars in damages.
It’s also worth noting that companies with both a bond and insurance are more likely to be awarded larger contracts. Licensing requires bonds, but government and private groups prefer to engage with insured contractors and often demand liability insurance when considering bids.
Conclusion
Don’t be caught off guard. Most small enterprises in most sectors can afford surety bonds and general liability insurance. A bond may be obtained for as little as 2% of the bond’s face value, and company insurance can be obtained for as little as $300 per year. Keep in mind that protecting the public from losses also protects you against costly claims.
The “what does bonded mean” is a question that has been asked many times. The “bonded” means the property or loan is protected in case of default by the lender.
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