Did you know that having a license, bond, and insurance for contractors can help protect your business in various ways?
Contractors go through a lot to get clients to trust them and do business with them. Most companies look for contractors who are licensed, bonded, or insured—to help mitigate the risks of working with contractors. In fact, some industries even require all three!
Being licensed, bonded, and insured all help minimize the risk of working with you, but at the same time, they all pertain to different kinds of protection. Learn about how you can identify which ones your contractor business needs.
What Does it Mean to be Licensed?
When a business is licensed, it means that they hold a state-issued license to perform a specific type of work. A business can hold any type of license either to simply operate as a business or to conduct specialized services or processes.
The benefit of owning a license is in assuring clients that your business has the necessary competence or has met the minimum requirements needed to operate. This also means you're more likely to customers and land contracts.
Some of the most common industries that require businesses to have a license include accounting and finance processes, real estate, medicine, and insurance.
What Does it Mean to be Bonded?
When a business is bonded, it means that they have purchased a surety bond so that in the event that the business, the principal, who purchases the bond somehow causes financial loss to a client or business partner, the obligee, a bond company, the surety, can pay the amount.
A surety bond ensures that a business is financially trustworthy. Unlike insurance, a surety bond requires the principal to pay the surety back individually, even when the bond is taken out of the business' name. This creates a huge responsibility for the principal, which is why people tend to trust bonded businesses.
Not all businesses are required to have a bond. Those that greatly benefit from being bonded are businesses or contractors that work with large scale projects involving large sums of money.
When businesses purchase a bond from a surety company, it can be either of two types, a commercial bond which is required of businesses or contractors who want to work with municipal or government agencies—or a contract bond, which is required of businesses working in construction projects.
There are four main types of contract bonds, these are:
- A performance bond helps ensure a business performs an agreed-upon service in accordance with a legal agreement.
- A payment bond protects employees, contract workers, and suppliers from late or non-payments.
- A bid bond ensures the selected bidder gets the job and fulfills the project.
- An ancillary bond that supplements performance bonds by making sure that all contract requirements, in lieu of the agreed upon service, are met.
What Does it Mean to be Insured?
When a company is insured, it means that they are hiring an insurance company to help shoulder the risks that come with operating its business. The insurance company does this by enlisting to pay for certain damages on behalf of a business.
Some of the most common insurance that companies get include commercial insurance, workers compensation insurance, and general liability insurance.
Commercial insurance, also known as business insurance, protects businesses from lawsuits filed against a business by clients, customers, or even employees. It's a more comprehensive type of insurance that covers most risks businesses experience externally or internally.
Meanwhile, a workers compensation insurance protects a business' workers by paying for their medical expenses, lost wages, and rehabilitation costs in the event that they are injured or disabled at work.
Lastly, general liability insurance protects a business against third parties in the event of bodily injury or property damage. Whether the third party is a client or a bystander, a general liability insurance can cover the cost of damages.
Get Insurance for Contractors Today!
As a contractor, it's important to get insurance to help protect yourself against the risks of operating your business. We specialize in bond and insurance for contractors.
Our extensive knowledge helps California contractors save time and money shopping for insurance by comparing policies from various insurance providers.
To get a free quote, contact us at 888-306-7887 at Stampede Insurance Services today!
