The Basics of Bond Insurance
For small and large businesses alike, becoming bonded is very important. It protects your business from risks such as accidents, mistakes, theft, and more. These risks could potentially put you out of business, and that’s where bond insurance comes in.
If you’re starting a new business, you may be wondering, how do I get bonded? Below, we’ve outlined the basics of bond insurance: what it is, how it works, and why it’s important for any business owner.
What is Bond Insurance?
Bond insurance (also known as financial guarantee insurance) provides coverage for business owners for accidents, employee theft, construction projects, etc. It protects your business from financial losses and gives you and your clients peace of mind.
Essentially, bond insurance is a form of credit line enhancement for your business—the premium is a measure of the perceived risk of failure of the issuer. It guarantees that your business will have the financial capability to complete a specific project or perform their licensed duties.
How Does Bond Insurance Work?
Being bonded is a business win for everyone involved. The bonds’ issuers can leverage business growth and receive a higher credit rating, making them more attractive to investors. Businesses who get bond insurance can take risks and feel safe doing so knowing that they can grow.
For construction companies and the financial industry, being bonded is especially important. A bond is a bit like an insurance policy that will pay the client if mistakes, accidents, or work stoppage make the contractor unable to pay. This type of insurance also protects borrowers from default by the issuer: it guarantees the principal’s repayment and perhaps even the interest.
Types of Bonds
- License and permit bonds. Easily written and usually required by a civil authority, license and permit bonds are common for businesses such as real estate brokers, auto dealers, and remodeling companies.
- Fidelity bonds. These bonds provide coverage for losses against theft by employees, particularly for small businesses.
- Bid/performance bonds. Usually required for large projects like construction, these bonds help prevent contractors from submitting frivolous or inappropriately low bids to win a contract. Performance bonds also protect against a contractor failing to deliver the work as specified in the contract. They involve a specific bid bond percentage of the total estimated contract amount.
When it comes to the differences between bid bond vs. bid security, know that a bid bond guarantees that the contract can meet the requirements and complete the project successfully. A bid security bond assures the client the selected bidder will sign the contract or forfeit their bid security.
The Importance of Getting Bond Insurance
All business owners need the right bond insurance, no matter how small the company. Your provider can help with coverage or a bid bond sample depending on your business’s size, the industry, and whether you handle sensitive digital data. In some cases, a small business may need to be both bonded and carry liability insurance.
InsureOne can help you find the perfect coverage for your business. Start a free bond insurance quote online, over the phone, or at one of our offices near you.