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Commercial Contractor Insurance Vs. Surety Bonds - What is the Difference?

October 27, 2022 / By: Stampede Insurance Team
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Blog
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Commercial Contractor Insurance Vs. Surety Bonds - What is the Difference?

Every contracting company needs the right commercial contractor insurance coverage or surety bonds. These two are similar, but there are a few key differences that you should know.

In this article, we'll go into detail about insurance versus bonds. Understanding the difference will help you find the best prices and let you continuously protect your company. 

What are Surety Bonds?

Surety bonds are industry requirements designed to make sure you follow the rules and regulations within your industry. These involve three parties—you, the organization that requires you to be bonded, and the provider. Each month, you'll pay a premium to the provider.

These bonds protect your clients, assuring them that you will meet professional standards and complete the job. If you were to leave without finishing, or not provide quality work, your surety bond would reimburse the client so they could have the work finished by another contractor.

Crucially, contractors must pay back the provider if a client files a claim. This provides a strong incentive for contractors to always complete jobs and meet a high standard of quality. 

Surety bonds worth $15,000 are required by the California licensing board for a contractor to get their license. Bonded contractors show clients that they are trustworthy and that they can provide guarantees.

What is Commercial Contractor Insurance?

As a business owner, you pay for insurance policies to protect your own interests. There are many types of contractor insurance. All insurance policies have very specific limits and coverage maximums.

General liability insurance protects you from being personally and financially responsible for property damage, personal injury, and similar situations. Every month, you pay for an insurance policy in exchange for protection from your insurance company. 

The insurer gives you financial protection if you ever face one of the situations your insurance covers, like stolen equipment or property damage. 

There are many different kinds of contractors insurance to account for all the different risks a company might face. Automobile insurance and equipment insurance are both common. 

What's the Difference Between the Two?

Surety bonds and contractor insurance both demonstrate your professionalism and investment in your company. The way they do this is very different, though. 

Surety bonds are focused on maintaining industry standards. They protect your clients instead of you. They give clients assurance that you can be trusted to provide quality work and reliable service. If you don't, they will be fairly compensated for the lack of work.

Commercial contractor insurance, on the other hand, is more general than surety bonds. It includes insurance that covers many different situations, from stolen equipment to property damage. As a business owner, this protects your finances. 

Both of these are essential for your business, and they both require you to pay a premium for coverage from a larger entity. Your premium for insurance and bonds is determined by factors like your credit and company history.

Insurance companies will cover your claims if they are accepted. There's no need for you personally to pay for a vandalized vehicle or pay for an injured client's medical bills. Surety bonds, however, require contractors to pay back the provider. If your company fails to meet the terms of your contract, then you'll need to actually pay back the money yourself. 

How Do Bonds and Insurance Build Customer Trust?

Both bonds and insurance show clients that you meet industry standards and are willing to be responsible. Many clients will only work with contracting businesses that are bonded and insured. This gives them peace of mind that you'll complete the job as agreed upon. 

If a client files a bond, it will cost your company a significant amount of money. That means you have a strong motivation to find solutions to their problems and stick with the job. 

Having general liability and other insurance policies also benefits your clients. If your work somehow damages their property, for example, they can go through your insurance company to get compensation instead of trying to hash out an agreement informally between the two of you. 

How Can an Insurance Provider Improve Your Company?

Like every aspect of business, finding a trusted partner or provider makes all the difference. Stampede Insurance strives to make life easier for contractors by solving their insurance concerns. Our insurance agents will speak with you to discuss coverage options and answer questions. We also offer quotes tailored to your unique business needs. To learn more about contractors insurance and surety bonds, contact us at 888-306-7887 at Stampede Insurance Services today!

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