Insured and Bonded: The Meaning and Importance of These Terms

June 21, 2022 | Insurance 101

Businesses will sometimes indicate they are “insured and bonded,” meaning they have taken steps to secure financial protection for themselves and their clients. But what is being bonded and insured exactly? And does it matter if a business is bonded and insured?

The answers to “What is bonded and insured for small business purposes?” “How do I get bonded and insured?” and other questions are essential to small businesses and their clients. Our informative guide to being bonded and insured ensures you’ll have the knowledge at your fingertips whenever you need it. Read on to find out more about why financial protection is important and who needs bonding and insuring for their business.

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Bonded vs. Insured: What’s the Difference?

If you’re wondering “What does it mean to be insured and bonded?” and what the difference is between being bonded and insured, this article will explain.

People will sometimes incorrectly use the term “bonded insurance,” meaning “being bonded and insured.” But it’s important to be clear that those are two different things. The small business insurance that biBERK provides protects your business from the many types of risks you face every day—risks that can create unbearable financial burdens in some cases if an incident occurs.

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Specifically, we offer:

  • Workers’ compensation insurance.This coverage protects employees and their families if a worker is injured, killed, or becomes ill at work.
  • Professional liability insurance.Sometimes called errors and omissions or E&O insurance, this coverage protects individuals and businesses that make a living by offering professional advice or services in the event that they’re sued for mistakes they make or are alleged to have made.
  • General liability insurance.This insurance covers liability for things like non-employee slip-and-fall accidents, employee damage to customer property, and other risks.
  • Business owners policy (BOPs).This type of policy provides liability protection plus coverage for things like damage to an owned or leased business facility.
  • Commercial auto insurance.This type of policy covers damage to company-owned or leased vehicles plus liability in the event of an accident.
  • Umbrella insurance.Umbrella coverage can kick in when a biBERK liability insurance policy has exceeded its limit to pay the difference, up to its own limit.
  • Cyber insurance.This is an important protection for every company that manages sensitive information that covers computer hacks and data breaches where fraud has occurred or is likely to occur.

These policies provide vital financial protection and also powerful peace of mind. However, in some situations, a client or customer may also require that a company be bonded and insured for small business purposes. That means they must purchase what are called surety bonds before a project begins, and this is where the idea of being bonded and insured comes into play. 

These bonds provide financial protection specific to claims of work that has been poorly executed or is incomplete and could cause accidents or injuries, as well as allegations of fraud or theft—all issues that business insurance does not cover and that can result in costly lawsuits.

There are three parties to a surety bond:

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    The principal (your business)
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    The obligee (your client or customer)
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    The surety (the company that backs the bond and makes payment if needed)

These bonds provide financial protection specific to claims of work that is poorly executed or incomplete, as well as allegations of fraud or theft—all issues that business insurance does not cover. There are three parties to a surety bond:

Three of the more common types of bonds are:

  • Contractor/construction bonds that indicate that the company agrees to comply with the regulations specified in a building permit
  • Fidelity bonds that protect a company (or organizations with which there is a business relationship) from fraud by employees
  • Janitorial bonds that cleaning companies often are required to have in case the work they do is deemed unsatisfactory

Bonds can be required in a wide variety of industries, but they’re particularly common in construction. The way they work in that industry is that the client requires a contractor to purchase a surety bond. Then if, for example, the contractor fails to complete the project, the client can file a claim with the surety company to be compensated for the cost of finding and hiring another contractor to complete the work.

Bonded and Insured for Small Business: How to Obtain Financial Protection

Companies wondering about how to get bonded and insured for small business will be glad to learn that this can be done quickly and efficiently. You simply need to contact the surety company to purchase bonds and biBERK to buy the appropriate business insurance coverage.

As noted on the website of the U.S. Small Business Administration, “The Small Business Administration (SBA) guarantees bid, performance, and payment surety bonds issued by certain surety companies.” The agency does this to help small businesses compete for work more effectively. It’s important to keep this in mind if you operate a small company and need to be bonded.

So, getting bonded and insured for small business is a straightforward process.

How Much Does It Cost to get Bonded and Insured for Small Businesses? 

The best source of information on bonding is a company that provides business bonding services. But the cost is often 1% to 15% of the bond amount. For example, you might pay $100 to $1,500 to purchase a $10,000 bond.

As for insurance, you can get instant, online quotes from biBERK for the policies you need. After deciding on your coverages, you can also purchase policies online with coverage that starts soon after—typically within a day or two. Later, if you need to file a claim, you can do that and manage your policies online as well.

Ultimately, being bonded and insured for small business is very cost-effective.

Why Being Bonded and Insured for Small Business Purposes Matters

Once you’re insured and bonded as requested by your client, you can get to work confident that you won’t end up with a large financial burden if something unexpected occurs. And your client has similar confidence, knowing that steps have been taken to protect them financially.

Companies that choose not to be bonded and insured for small business may miss out on opportunities since some organizations will refuse to do business with those who don’t take these steps. Even if there aren’t strict requirements regarding your company getting bonded, insured, or otherwise financially protected, doing so can help build trust with your current or potential clients or customers.

Being bonded and insured for small business may also create new opportunities for your business. One of the most frequently asked questions among business owners regarding service providers they’ve used is, “Are they bonded and insured?” If someone you’ve done work for can confirm your business checks both of those boxes, it builds your credibility, and you’re much more likely to get further consideration. This gives you a competitive edge over companies that aren’t bonded and insured.

Additional Protection: Licensed, Bonded, Insured

In some scenarios, a company must be licensed, bonded, and insured for small business. That simply means that the company is bonded, insurance has been purchased, and any relevant licenses have been obtained. 

Being licensed means that you’ve met a set of requirements specified by the authorities for the type of work you do and where you do it. As a result of being granted a license, you have the right to conduct business in that location. Often, there are one or more tests you must pass to prove your competency in your field. 

Requirements for being licensed, bonded, and insured for small business are more common in technical professions, particularly those in which there is a risk of injury to people affected by the licensed company’s work, including the client and potentially the general public.

Working With Companies That are Bonded and Insured for Small Business

If you are a consumer looking for the best company to hire, it’s crucial that you ask candidates if they are bonded and insured. When a company has those attributes, you benefit in multiple ways, including: 

  • Financial protection. If something about the engagement goes wrong, you can rest assured that you’ll get appropriate compensation for mistakes made, as defined by your bond or insurance policy. 
  • Quality assurance. You can count on a business that makes the effort to be bonded and insured to provide excellent products and services. 
  • Defined remediation. Accidents or mistakes can happen. But when a business is bonded and insured, you can be confident there is a process for resolving the issue to your satisfaction.

 Bonds and Insurance in Real Estate

One industry that frequently uses the services of people who are bonded and insured is real estate. For example, property managers, real estate agents, and others rely on construction companies and independent contractors to build or renovate properties.

When the company or individual working on a project is bonded and insured, the person hiring them can be confident that there won’t be any negative financial outcomes related to work quality, deadlines, etc.

Property managers, real estate agents, and others also need insurance coverage (an errors & omissions policy is one example) themselves. If they are sued, insurance can help pay for their legal defense, settlements, or judgments.

Being Bonded and Insured for Small Business Provides Reassurance Both for Companies and Their Clients

Ultimately, when a company is bonded and insured for small business purposes, it is reassuring both for them and for their clients. With the proper financial protection in place, both parties can focus on achieving a successful outcome for the project.

biBERK is part of the Berkshire Hathaway Insurance Group, which has provided insurance policies and coverage to many thousands of customers over the last 75+ years. If you’re looking for a respected, long-standing company that can explain all aspects of being bonded and insured to you and provide the correct level of insurance coverage to your small business, then look no further.

Our licensed insurance experts are always happy to share insights on things like how to get bonded and insured or answer questions like “Do I need to be bonded and insured for small business?” They can explain your insurance requirements and may be able to point you in the right direction for information on being bonded.

Once you’re ready to purchase your insurance policies, you can do that online or contact us by phone for assistance. Often your coverage will start within 24 hours of obtaining it from us.

Learn more about small business insurance policies from biBERK today!

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