Business bonding insurance is similar to regular liability business insurance in that it provides protection from loss and liabilities and can be purchased from an insurance agency.
However, that is where the similarities end.
Bond insurance is very different from regular insurance because instead of covering general business liability, it offers guarantee to the bond insurance holder should something unforeseen happens.
For example, if you offer services to customers but fail to provide those services or complete the job per the agreement you signed with the customer, bond insurance will cover the customer’s losses. It does not cover personal injury or property damage.
There are several business bonding insurance and personal bonding insurance products including:
• Payment bonds guarantee that all your subcontractors and other providers will be paid while carrying out the duties of a contract. • Indemnity bonds cover losses if you do not perform the job or don’t pay suppliers who supplied goods or services to your businesses. • Performance bonds guarantee that you will carry out duties according to a contract. • Bid bonds guarantee that any work promised in a won bid will be performed according to terms.
There are two types of bonds; fidelity and surety.
With a fidelity bond, the beneficiary is you or your business and the parties involved are only two: you, and the bonding company. In the event of a claim, your business gets payouts. An example is a bond to protect from employee theft.
With a surety bond, there are three parties – the obligee requiring the bond, the principal that needs the bond, and the surety which is the company backing the bond.
Bonds are only needed when you are required to purchase them. Many types of jobs won’t require bonding. They are often required by governmental agencies and work that is done under a contract.
In addition, some types of businesses and licensed contractors are required by the Federal government to be bonded. Going without this coverage can result in a business being shut down, so it’s important to find out if the laws require bonding for your business.
Bonds can be more difficult to get than regular insurance. Unlike liability insurance or general business insurance providers, bonding companies evaluate credit and financial assets. You can’t get a bond that is higher in value than your personal or business worth or your liquid assets.
Unlike insurance, shopping around for bonds is not a good idea. Surety companies often reject applicants if they get submittals from too many agents. It’s better to find a reliable insurance company that you trust and work with them to determine your bond insurance needs to find the right bond insurance product from the right provider.
In Texas, call Texas Energy Insurance at 281-398-1010, toll-free at 1-877-952-1010 or complete our bond insurance contact form.