As a business owner or entrepreneur, you’ve likely come across the term “bonded and insured”. If you find yourself wondering what those terms mean, or what the difference is between the two, Staples Agency is here to help!
When a business, company, or individual says that they are bonded and insured, it means that they have the proper insurance for their business, and have made payments for additional coverage with a bond. We have already dived into the basics of business insurance, so what about bonds?
What is a Bond?
A bond is an extra level of insurance that you can add to your current plan. This will guarantee a payment amount if certain conditions are not met in a contract that you’ve signed. How are bonds relevant to your business? If you’re a contractor and have general liability insurance, then you may need a contractor bond that will cover any additional damage that could occur on the job. This bond would also include claims against incomplete work or work that was not completed to the customers standard. Bonds are not only for contractors, there are different types of bonds on the market that will suit the needs of your business.
Types of Bonds
- Surety Bonds: This bond is a contract that binds at least three parties, protecting against losses caused by a party not meeting contractual obligations. For example; a contractor would have a surety bond that bonds themselves (the contractor), the customer, and the surety (guarantor). The contractor will pay the guarantor to take out the bond, and if you fail to meet your contractual obligations, the guarantor will pay the customer.
- License and Permit Bond: License and permit bonds are required by government bodies. This can be federal, state and municipal level, as part of the licensing process for your business. This bond is a guarantee that your business will act according to all laws and regulations, this protects that state and customers.
- Contract Bonds: Also known as “performance bonds”, this serves as a guarantee of the fulfillment of all contractual terms. Its purpose is to assure a standard of performance that is agreed upon by the contractor and the customer.
- Fidelity Bonds: A fidelity bond protects policyholders from fraudulent acts. A small business owner would take out a fidelity bond to insure the business against fraudulent acts committed by employees, such as stealing or damages.
Should My Business be Bonded?
While liability insurance is a must for your business, bonding is a bit more flexible. If you’re in the business of smaller jobs, such as mowing lawns or cleaning houses, then a bond might not be necessary. However, if you’re in a higher risk business, such as general contracting, or running a daycare, then business insurance and bonding are almost necessary, and possibly required by law.
Have questions? We have answers. Please Contact a Staples Agent with any additional questions about insurance, or bonding.