One of the biggest mistakes many contractors make is thinking that surety bonds and insurance coverage are the same thing. In truth, while these two forms of coverage are similar, they are separate and distinct, and fulfill different purposes in your business operations. It’s vital to have both, but unfortunately, all too often an insurance company will convince you that insurance is all you need.
This isn’t necessarily malicious on the part of the insurance agent; many just don’t realize the difference between the two, or the importance of having both. Discover the reasons why your insurance agent should be working with a surety expert, and understand the difference between surety vs. insurance.
Surety vs. Insurance
The key differences between surety vs. insurance reside in what they cover, who they protect, and both when and how they pay out. It’s a mistake thinking that surety works exactly like your insurance policy, or vice versa and understanding the difference can be key to making sure you have the coverage you need, when you need it.
Insurance Protects You
An insurance policy protects you in case of unforeseen accidents. If your business suffers damage, whether it’s damage to a person, equipment or property, insurance will pay out to cover that damage. If someone on your payroll damages someone else, your insurance policy will cover that damage. It’s a protection against liability and to cover your losses.
You pay a premium every month to keep this coverage in place, and it’s ongoing. Insurance will be there to protect your business whenever you need it.
Surety Protects Your Client
A surety bond, on the other hand, is taken out for each individual job upon which you bid. You generally pay the premium for the surety policy up front, and it covers the entire job. However, it doesn’t protect you or your losses. It protects your client and depending on the type of bond, sometimes your workers.
A surety bond is in place to compensate anyone who would be harmed if you fail to live up to your contract. If you can’t finish the job for whatever reason, the various bonds you carry will see to it that your client is reimbursed for their losses, that your subcontractors are paid, and other obligations are met.
There are a number of different types of bonds you might carry on a job. Performance bonds, for example, promise that you’ll finish the job. Payment bonds promise that you’ll be able to pay your subcontractors and suppliers. Bid bonds are a promise that you’ll comply with your bid contract. You may need multiple bonds for your job.
Finally, a bond is a loan. If you need to use your bond coverage, you’ll be on the hook to pay it back. It’s extra incentive to be sure you live up to your responsibilities.
Getting the Right Coverage
When your insurance company works out your policy, they should also work with a surety bond expert to ensure that you’re properly protected from all ends of the spectrum. If you’re in need of the right bonding, and you need more information, NSSI can help. Get in touch with us to get started today.