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The Difference Between Being Bonded and Being Insured

When you say that you are licensed, bonded and insured, that means that you have the required licensing for your business, proper insurance, and have made payments for additional coverage with a bond. You may understand the idea of having the necessary license. You probably know what insurance is. So let’s discuss bonds.


A bond is like an added level of insurance on your current plan. It guarantees a payment amount if certain conditions are (or aren’t) met in a contract you’ve signed. For example, let’s say you’re a contractor with general liability insurance. That’s a great first step. But you may need to have a contractor bond to cover additional types of damage that could occur on the job, or claims against incomplete work or a shoddy job.



Different Types of Bonds

There are a lot of different types of bonds on the market. Some of the more popular ones among small business owners include:

Surety bonds 

If your first question is, “what’s a surety bond?” you’re not alone. Basically, a surety bond is a contract between at least three parties, that protects against losses caused by on party’s not meeting contractual obligations.


So, if you’re a construction business then the surety bond would be between you, your customer, and the surety (aka your guarantor). You pay the guarantor to take out the bond. If you fail to meet your contractual obligations to your customer, then the guarantor pays the fee or the fine to your customer.


In many cases, the Small Business Administration guarantees surety bonds in order to help small businesses compete for jobs. It’s worth checking if they would guarantee your surety bond.

License and permit bond 

This type of bond falls under the umbrella category of surety bonds, which themselves are sometimes referred to as “license bonds”.


License and permit bonds, specifically, are bonds that are required by government bodies. This can be on the federal, state and municipal level, as part of the licensing process for your business. Each profession has its own license bond. Depending on your business needs, this bond can be valid for one year or even up to five years.


Basically, the bond is a guarantee that your business will act according to all regulations and laws, protecting both the state and customers.


Contract bonds

Also known as “performance bonds”, a contract bond serves as a guarantee for the fulfillment of your contractual terms. A performance or contract bond is a particular type of surety bond. Its purpose is to assure a standard of performance agreed upon by the contractor and the customer.


As it is based on the performance, the parties in this contract can specify the expected time of completion, materials to be used on the project, and a multitude of other factors to meet the customer’s requirements. It is issued either by a bank or an insurance company and is generally purchased per project, by contractors, as part of the requirements for securing a job. Among other things, it protects the customer from incomplete projects. This can include instances in which the contractor goes bankrupt before the project is complete.


Fidelity bonds

The word “fidelity” itself refers to loyalty, reliability, and faithfulness. And what a fidelity bond does is protect policyholders from fraudulent acts. As a small business owner, you would take out a fidelity bond to insure your business from fraudulent acts committed by your employees. This can include stealing or damages caused.


Cost to Get Bonded and Insured

The cost for getting bonded and insured varies. It depends on your profession, the type of bond you’re taking out, the level of coverage you want and deductibles.








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