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What Does It Mean to be Bonded and Insured?



When a person or company is marketing themselves and their services, many will promote themselves as "bonded and insured." However, many consumers are often unsure what this actually means. We all seem to know this is important, but why? What does it mean to be bonded and insured?

Those who are not bonded and insured are often cheaper. However, did you know using these individuals and companies means you are accepting all the liability if something goes wrong? That is right. You are on the hook for everything from property damage to an injured worker.

The main distinction between bonds and liability insurance is who becomes financially restored in case of a claim. In basic terms, insurance protects the company or individual doing the work from loss, and a bond protects those having the work done if there is a failure to fulfill obligations.

If a contractor has equipment damages or worker injuries, an insurance policy makes sure they are compensated for that cost. There are only two parties involved: the insured and the insurer. On the other hand, a bond protects those in which an obligation is owed (the obligee) if the company providing the work or service (the obligor or principal) causes them a loss. Imagine along the lines of a contractor causing damage to one's home, worker theft, or a failure to complete work.

Bonded

  • A contract that guarantees the bonding company will pay the obligee if the principal (i.e. the contractor) does not meet their obligations.
  • A bond protects the consumer.
  • A bond's premium guarantees the principal fulfills their obligation.
  • Bonds are issued to individuals or companies whose projects requires a guarantee.
  • Bonds are a form of credit and the principal is ultimately responsible for repaying the claim.

Being bonded means a bonding company will protect the consumer if they have a valid claim against a company. These claims can include things like property damage to theft by a company's workers. If there is an issue, one would file a claim against the company. The bonding company (or surety) will investigate and will pay out using the bond if the claim is valid.

Insured

  • A risk management contract between the insurance company and the insured.
  • The contract (or policy) guarantees the insurance company will compensate the insured if there is a loss.
  • An insurance policy protects the insured.
  • An insurance policy protects from possible losses.
  • The insured does not typically repay the insurance company if there is a claim.

Most of us are more familiar with insurance. If a worker is hurt on the job, or a piece of equipment is damaged, the company files a claim for the loss. As an example, imagine a remodeling company is installing new siding on your home, and a worker falls off a ladder and gets hurt. If the remodeling company is not insured, a claim is placed on your homeowner insurance policy. If the remodeling company is insured, the claim is on their own policy.

Summary

The phrase "bonded and insured" is something we see all the time from many different kinds of businesses, from contractors to cleaning services. Many of us know that a bonded and insured company is a good thing, but we don't know why. We hope this article has helped to clear up any misunderstandings.

When a company is bonded and insured, the ultimate benefit goes to the consumer. Being bonded ensures the consumer is made whole if a company does not fulfill their obligations. Insurance insulates the consumer from liability if the company receives a loss while performing work.

The primary difference between the two is who becomes financially restored. Claims on a bond are paid to the consumer to cover their losses. Insurance will pay the company for their losses while performing their work or service. Make sense?

For more information or if you have questions about how to become bonded and insured, please contact us.

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