The word “bonding, licensed and insured” are common words used in certain sectors;  particularly those in which hiring contractors or subcontractors is a common practice.

Customers work only with companies that follow all three criteria, and many businesses rely on these words in their ads. But what does that actually mean? What are the benefits of being licensed, bonded, and insured as a business? What do consumers see as the main benefits of hiring companies that are licensed, bonded and insured?

Let’s break down the individual terms and focus on some more nuanced concepts that will help you understand what all this actually means for your company and your customers.

What Does It Mean to Be Licensed?

License means that you have the requisite qualifications, meet a set of minimum requirements and have the right to conduct business in your region. In some fields, manufacturing, for example, you need to give certain exams to get a license.

Typically, the more technologically complex the occupation and the more likely it is to entail a higher risk of personal injury to customers, the more likely it is that training will be needed in addition to paying a license fee.

What Does It Mean to Be Bonded?

A bonded company is one that has purchased a protection contract. A security contract is a deal between the three parties: the owner–the investor is the issuer of the guarantee; the company providing its services to others.

Obligee–The obligee is an entity that demands a guarantee before authorizing the principal to do business, usually a state or local agency.

The Surety–The assurance is the insurance company that provides the bond

Surety bonds safeguard the third-party that is hiring a company from any possible losses that would arise from incomplete work, damage, theft, or any other failures of the hired company. In the case of injury, the third party might file a claim and receive compensation from the protection for those expenses, which the principal would then have to refund.

What Type of Surety Bond Should You Get?

Usually, there are two types of insurance bonds: corporate bonds and commercial bonds.

Commercial bonds are necessary for businesses wishing to work on projects with a government or a local agency. We shield public institutions from damages actually suffered as a result of a bonded business ‘ failure to comply adequately with applicable laws, rules or regulations. The protection company must fund the bond fee if the owner is unable to resolve the issue individually. The owner then has to repay the insurance company.

The second major form of insurance policy for companies is a performance plan. Contract bonds, also popular as “building guarantee bonds” are the bonds you need in the construction industry. Nevertheless, they also refer to other sectors.

The most famous statutory contracts are Quality Bond–this bond guarantees that the company delivers its services in full, in compliance with the agreement made between it and the contracting party.

Payment Bond–This bond guarantees that staff, subcontractors and vendors are safe from default or late payment.

Bid Bond–Bid Bonds pledge to the recruiting party that the candidate can take up the job if chosen.

Ancillary bonds–These bonds work in conjunction with performance bonds; they ensure that statutory conditions, except performance and payment criteria should adhere. 

What Does It Mean to Be Insured?

When a corporation is insured that means that it has passed some amount of liabilities to a third party through an insurance product. Many kinds of commercial insurance can cover companies from a range of risks, but keep in mind that not every business needs every kind of insurance.

In the case of a registered business , bonded, and covered, it usually means that a business has good insurance plans for its business needs, such as a worker’s insurance company and a general liability insurance policy.

What Additional Insurance Do You Need?

No company is precisely the same, and obviously, any business appears to have a different set of requirements when it comes to coverage. The policy that your business buys depend on your market, size of your company, and different risk factors that may or may not be specific to your business.

The best course of action would be to contact specialist brokers who understand the business and can help you find the right coverage and pricing.

Professional insurance brokers use industry-leading technologies to compare the policies to similar companies in your field, and receive offers from various insurance carriers on coverage that you may not have and might want to start purchasing. They also cross-reference the rates to businesses of comparable size, product terms, history of litigation and risk tolerance to ensure that your prices are as competitive as possible.

The Main Differences Between Insurance and Bonds.

Bonds are often confused with bonds, but there are some major differences between them. What they do have in common is that both offer financial compensation in the case of a claim being made.

Nevertheless, with a surety bond claims are against a surety corporation that grant the bond; but you can get claim against insurance policy from an insurance company. In fact, you have to pay the insurance company in favor of the lawsuit.

The key difference is that insurance covers the company itself from damages, while bonds cover the person who contracted the business for a specific job or mission.

Why Your Company Must Become Licensed, Bonded, and Insured.

Licensed, certified, and insured may not be needed in any situation, but it can provide significant benefits in any circumstance.

Beyond giving your customers a sense of security, getting a business license will actually protect you as well. In some cases, it can help you collect damages if a company refuses to pay.

Getting bonded helps build trust in your company and your customers as you owe them guarantees that they will be financially covered against risks that they may suffer if you do not entirely meet your contractual obligations to them. Bonds can secure your integrity if you are unable to meet the expectations of your customer.

Getting covered offers insurance to businesses and customers interested in working with you and shows that you are financially stable. If something goes wrong, having the right insurance coverage would shield your company from financial losses and help you to resolve a variety of challenges when coping with those problems that may impede your ability to provide your services to customers.

Clients and employers want to work with companies that are stable, not companies that could go bankrupt as a result of liability litigation. Managing the risk involved in your business operations and passing the risk to your creditors is an important aspect of securing the future of your firm.

What Does it Cost to be Licensed Bonded and Insured?

The cost of obtaining a license can vary depending on the location(s), your profession and the type of service your business operates.

Insurance costs can change based on the plans you select; the particular risks your company faces, the valuation of your properties, the size and income of your business, and other key factors.

The duration of the bond depends on the terms of the agreement or contract to be secured by the bond. Insurance bonds are more similar to loans than insurance policies; and factors like the credit score and the financial score of your company. Businesses with a good credit score have pay 1-5 per cent of the bond amount, which can rise to 20 per cent for companies with poor credit scores.

This blog was written by Linda Rawson, who is the founder of DynaGrace Enterprises (dynagrace.com) and the inventor of WeatherEgg (weatheregg.com). She, along with her daughter, Jennifer Remund make up the mother-daughter duo of 2BizChicks (2Bizchicks.com).  For further information, please connect with Linda on LinkedIn, or contact her at (800) 676-0058 ext 101.

Please reach out to us at GovCon-Biz should you have any questions.