Being insured and being bonded are two entirely different things. When looking for security and safety, one must know that is quite essential for you to be able to tell the difference between the two.
In the construction industry, both physical and financial safety play a huge role. Therefore, it is important for you to choose the right coverage options. Both insurance and bonds play an essential part in the safety of the consumer and contractor. Moreover, they lead to a certain kind of trust which provides the basis through which contractors can appeal to consumers.
But what is the difference between being insured and bonded? If you are looking for the answer to this question, then continue reading to find out.
Here is a rundown of what it actually means to be insured and bonded.
Table of Contents
- 1 What Is The Meaning Of Being Insured?
- 2 Insurance Options For Businesses
- 3 What Is The Meaning Of Being Bonded?
- 4 Bond Options For Businesses
- 5 What Is The Difference Between Being Insured And Bonded?
- 6 How Much Is The Cost Of Being Insured And Bonded?
- 7 Do You Need To Get Your Business Insured And Bonded?
- 8 Conclusion
What Is The Meaning Of Being Insured?
Small companies usually buy insurance policies to get security in case of any losses or lawsuits if an unfortunate circumstance was to occur. Businesses gain insurance dividends so that they don’t have to pay a hefty amount out of their own pocket to compensate for any damages, charges for the lawyer, and/or the court.
One of the most popular forms of insurance is general liability which provides security against any damage caused to an outsider or any to third party property.
In addition to this, small businesses usually have an errors and omissions (E&O) insurance which is also known as a liability insurance. This type of insurance provides coverage for any lawsuits that are caused by disappointing work or a professional negligence case.
Insurance Options For Businesses
There are many coverage policies that small businesses could take advantage from. Such insurance policies include:
- workers’ compensation insurance
- umbrella insurance
- commercial property insurance
- cyber liability insurance
- commercial auto insurance
What Is The Meaning Of Being Bonded?
Bonds provide coverage and security against a number of different things. These include things such as claims of disappointing work or work that has not been finished. In addition to this, bonds also provide protection in case one fails to abide by the rules and regulations, and has to face allegations regarding embezzlement and scam.
A surety bond comprises of three basic things:
- The principal: The agency buying the bond
- The obligee: The person who has applied for the bond
- The surety: The company that finances the bond
Similar to liability insurance, bonds also provide coverage against professional negligence claims. However contrary to what happens in insurance, the company that finances your bond expects a refund from you when it pays for a claim.
For example, a customer commissions a company to extend a new office and needs a bond as part of the contract. However, while the work is still in progress, the project manager resigns. Thus, the work remains incomplete.
In such a case, if the customer has a surety bond, he/she can apply for a claim with the guarantee of receiving the amount to hire another contractor to complete the project. The original contracting company would then be bound to compensate for the surety.
Bond Options For Businesses
There are different types of bonds that you could get depending on what you need. The types of bonds include:
- Performance bonds facilitate the one who owns the project and ensure that all the terms and conditions are fulfilled. However, in a situation where the contracting company does not finish the work, the bond ensures that a refund is given to the project owner.
- Bid bonds provide coverage to the project owner by making sure that the contractor will fulfill the terms of the bid if given the job.
- Payment bonds make sure that all workers working under the contractor are paid for the work they do and the materials.
- License and Permit bonds are bonds needed by government authorities. Moreover, it also makes sure that business is being done according to the contractor licence and the approved rules and regulations.
- Maintenance bonds provide coverage in case the materials used are not up to par. They provide coverage even after the work is finished, much like a warranty.
- Contract bonds ensure that the terms of the contract are fulfilled. Contract bonds are also known as performance bonds.
- Fidelity bonds protect a company against allegations of fraud and theft.
What Is The Difference Between Being Insured And Bonded?
It may look like the difference between bonded and insured is pretty insignificant. However, once you start to figure out the differences, you will find out that both these terms are actually very different.
A lot of people usually do know about insurance and what it is about. Getting insurance means that you are willing to share the risk factors. It is expected that the basic issue that is being protected will happen some place is the pool. In this way, the amount mirrors the certainty.
On the other hand, bonds are very different. They are not amounts that are estimated on the assumption that there might be losses. However, bonds are written with the presumption that there will not be any claims. Therefore, now you can see that there is a big difference between being insured and bonded.
How Much Is The Cost Of Being Insured And Bonded?
The amount needed for getting bonded and insured is never the same. It is always different. These differences are based on factors such as your field of work, the type of bond or insurance that you want to get, the degree of insurance that you need, cost of deductibles, and the area where your business functions. All these factors change from person to person, so the cost of being insured and bonded also differs.
There are some bonds that are paid in the form of a monthly premium, while still others, like fidelity bonds or contract bonds, are usually paid as a ratio of the coverage amount you want. Typically, the bond amount is almost 1% of the total. An example of this is that if you want a $50,000 bond, you would have to pay around $500 in the start.
Surety bonds are also found out in the same way, i.e. as a ratio of your total coverage you want. However, the difference lies in the fact that the percentage rate is almost as high as 15%. In addition to this, this percentage amount is deposited as a yearly dividend.
When dealing with licensing bonds, your credit score is also taken into consideration before a final amount is decided.
Do You Need To Get Your Business Insured And Bonded?
If you own a business, then this is a question that you should definitely ask yourself. If you have a small business like cleaning houses etc, then you do not necessarily need to purchase a bond. However, if you still want one, then it is totally up to you.
If you have a construction business, then you should know that it is quite frequent that people within your line of work purchase bond coverage, general liability insurance and even workers’ compensation. These bonds and insurance policies are purchased prior to the company being accepted for a project or professional license.
Furthermore, in some situations, the federal law requires that your business has a bond or an insurance.
You should also remember that whether you need an insurance or bond also depends on a number of other factors. Some of these factors include things such as the type of industry you work in, the number of employers who work for you, if your job requires a lot of technical work related to IT and delicate digital information or not, and if you often drive to work.
Therefore, before you purchase either an insurance or a bond, you must do your complete research and look into these and other different factors that might affect the amount that you are covered for. This will help you make better decisions for your company and keep you covered for the long run.
Being insured and being bonded are two completely different things. However, despite their differences, both of them have one purpose and that is to provide coverage for you, your employers, and your company.
Now that you completely understand the difference between being insured and being bonded, you can make the right decision for your company. If you have not already, then we suggest that it is high time to either get insurance or a bond. After all, it is always better to have some coverage for any loss rather than suffer without any compensation.