Any consumer who has done a little research has been told that they should only work with insured, bonded, and licensed companies. However, meeting all those qualifications is only required for some businesses in specific industries. Therefore, a company might meet none, some, or all depending on industry requirements.
Bonding and insurance for a small business help protect your company from monetary losses when something unexpected occurs. In addition, it can show customers and clients that you are a legitimate and reputable business. Of course, a bond is different from insurance, but both can be important to future success.
- The difference between bond and insurance for a small business
- What is small business insurance?
- What does bonded mean in business?
- Reasons to get bonded and insurance coverage for a small business
- Do I need both a bond and insurance for a small business?
The difference between bond and insurance for a small business
Most small businesses will choose an insurance policy to protect against unexpected lawsuits and losses. The company pays a premium to the insurance company, and in return, they are given assurance that they won’t need to pay large sums of money on their own to handle things like court costs, attorney fees, and damages.
On the other hand, a surety bond offers protection if a client claims you did not complete work or provide satisfactory services. It also can be used to help protect from accusations of fraud and theft or otherwise failing to comply with regulations and laws.
What is small business insurance?
Within bond and insurance for a small business, insurance is the most common. General liability is often purchased as a form of protection, no matter what industry a company works in. This coverage protects against damage or injuries to someone or their property. Learn more at the best general liability insurance companies and the cheapest general liability insurance companies.
Many small businesses also have professional liability insurance (which is also known as errors and omissions or E&O insurance). This is used to cover potential lawsuits stemming from complaints about negligence or providing less than professional work. Learn more at the best professional liability insurance companies and the best E&O insurance companies.
There are several other insurance policies that a small business might choose to pay for, such as:
- Worker compensation insurance: Your general liability insurance covers injuries to clients, customers, and passers-by that happen on your business property. However, it doesn’t cover employees injured while on the job. You’ll need workers’ compensation insurance for that. Learn more about the best workers comp insurance companies and the cheapest workers comp insurance companies.
- Commercial auto or business vehicle insurance: If a business-owned truck, van, car, or other vehicle is damaged in an accident while being used for work related purposes, your personal auto policy wouldn’t cover it. You’ll have to buy commercial auto insurance for that protection. Learn more about the best commercial auto insurance companies and how to find cheap commercial auto insurance.
- Crime or theft: If an employee commits a crime against your business or steals from it, general liability will not make your business whole. You will have to purchase employee dishonesty insurance.
- Cyber insurance: If your business data is lost, compromised, or stolen, your business general liability coverage won’t pay for related costs. Cyber security insurance covers those losses. Learn more about the best data breach insurance companies and the best cyber insurance companies.
- Commercial property insurance: General liability covers third party property damage, but it doesn’t cover damage to your business property, including buildings, equipment, or merchandise. You’ll need commercial property coverage for this. Learn more at the best commercial property insurance companies.
- Commercial umbrella insurance: This provides additional coverage over your policy’s limits. This is the extra protection that small businesses facing costly risks should consider. If your small businesses provide services to bigger corporations, for example, commercial cleaning service, they might require you to have this coverage anyway. Learn more at the best commercial umbrella insurance companies.
Every industry is different, so it’s essential to understand which insurance policies are needed for the work your company does. Once that’s done, you can compare insurance companies or go through a broker to get an idea of what your options are.
Learn more at our comprehensive guide of the 15 types of business insurance coverages.
What does bonded mean in business?
A surety bond focuses on three different parties. That includes the principal, or the business that is buying the bond, the obligee, or the client who has requested a bond be purchased, and the surety, or the company that does the underwriting for the bond.
Much like professional liability insurance, these bonds are in place to avoid problems with claims of negligence. However, there is a difference between the two. When selecting a bond and insurance for a small business, the surety for the bond expects that you reimburse them financially if they need to pay a claim for your business.
Here’s an example: Let’s say a client asks a business in cable installation to wire their new office. They want a bond as a part of the contract. As the job goes on, the manager ends up resigning and the project is never finished.
At that point, the client can file a claim for whatever it would cost to hire someone else to finish things. The surety or the company that underwrote and issued the bond will pay for the claim.
The requirements for bonds vary based on state and are used in several industries. For instance, these are some of the most common bonds:
- Construction bonds – commonly used by construction companies. Many clients would require construction companies to be bonded before signing the contract. Construction companies need several insurance coverages in addition to being bonded.
- Janitorial bonds – commonly used by cleaning companies, both residential and commercial cleaning companies. Learn more about insurance coverages that cleaning companies need.
- Fidelity bonds
Reasons to get bonded and insurance coverage for a small business
Having a bond and insurance for a small business provides a number of advantages to you and your company. In most cases, the cost of the premium is tempered by the protection and security that these items provide to you. Below are a few of the ways that bonding and insurance can assist your company:
Protection from financial loss
The primary purpose of any insurance is to protect you from excess financial damages. Choosing to go without a bond and insurance for a small business can quickly cause problems. For example, needing to pay out of your own account for a damaged vehicle or expensive piece of equipment can be financially challenging. On top of that, lawsuits can be thousands to hundreds of thousands of dollars and may lead to bankruptcy without insuring and bonding the company.
Prove your business is reputable
When a client chooses a business to work with, they want to be sure you are legitimate and reputable. Showing that you carry bonds and insurance is a quick way to prove that. It makes clients more confident that you’re responsible and appropriately handling business. You’ll stand out from others who don’t have a bond and insurance for a small business.
Meet client requirements
Beyond confidence, being bonded and insured is often required before you go to work for someone. If you plan to work with any large clients, they will expect you to have at least general liability insurance. Some may also want you to have special bonds and additional insurance coverage.
Do I need both a bond and an insurance policy for a small business?
Almost every small business needs general liability insurance. Many will also reap benefits from getting professional liability coverage. However, you may need additional types of insurance or bonds based on the following factors:
- Which industry you work in
- Whether you often drive throughout the workday
- Whether you have employees at your business
- Whether you work with digital data of a sensitive nature
Once you have an idea of whether you need a bond and insurance for a small business, the next step is getting quotes to get the best price. You want to be sure you are getting the protection you need without paying an excessive price. Visit several insurance companies for quotes or work with a broker who can provide you with several options before choosing the one that works best for you.