One of the more popular questions new business owners ask is “how do I get bonded and insured?”
Both are an excellent way to protect your business and clients from risk but it’s crucial to understand which option covers what specific types of risk.
In this article, we’ll dive into how to get bonded and insured and the associated costs related to it.
Bonded vs Insured: Difference Between Being Bonded and Insured
Before we dive into how to get bonded, let’s briefly look at the difference between being bonded and being insured.
First you need to know that there are two different types of bonds, Surety Bonds and Fidelity Bonds
Surety Bond Definition: What Is A Surety Bond?
A surety bond is an agreement between 3 parties.
The principal, which is the person who forms the bond with...
The Surety, the company who guarantees the bond, usually an insurance company
The Obligee, the party who is requiring the bond
The purpose of a surety bond is to guarantee that a specific task will be fulfilled. If the task is not fulfilled, the obligee can make a claim to recover losses. The underwriters will then go after the principal to reimburse them for any claims paid.
A surety bond is not insurance and is considered to be a line of credit.
What is a Fidelity Bond?
A fidelity bond helps business owners protect against losses due to an employees' fraudulent or dishonest actions.
Fidelity bonds are used as a way for business owners to manage the risks they are exposed to in their business.
A fidelity bond is an insurance policy and does not accrue interest. It's also known as an "honesty bond"
What Is Being “Bonded”
Typically, being bonded means that your business uses surety bonds to protect its client against any losses that may come due to failure to fulfill the work that was agreed upon.
These types of bonds are especially valuable if you are a contractor of some sort that gets hired to work on other people’s home or business.
Being bonded gives your potential clients a sense of comfort because it adds a level of protection that your work will be completed as promised.
How Much Does It Cost To Get Bonded And Insured
The cost of a surety bond can differ based of a few factors, but usually the cost is 1-10% of the full amount of the bond.
Some of the factors that will change the cost of a bond are:
If you own a business, it’s safe to say that you should consider getting bonded. It gives your potential clients peace of mind when they do business with you, which means it may also help you get more business as well.