It sure seems like overkill for contractors to mention that they are licensed, bonded, and insured. On the surface, it seems like just one of those things would cover everything you would need to know about a contractor and the protection they have for their business.
However, there’s a lot more to these three things than meets the eye. Whether you’re a new contractor who is wondering if you need a bond and insurance or you’re on the hunt for a contractor you can rely on to get the job done, it’s important to understand the difference between a contractor’s bond vs. a license vs. insurance.
What Is a Contractor’s Bond?
A contractor’s bond is similar to insurance in that they are both designed to protect people and property. However, a contractor’s bond protects customers and employees through the work being done, while insurance protects against physical and property damage.
A bond is issued before work begins. It outlines who is responsible if the work is not performed properly. It is provided by a surety company and protects customers from having to pay for poor work in case the contractor:
- Doesn’t finish the project
- Doesn’t pay for the proper permits
- Fails to meet financial obligations
There are different types of bonds. A contractor license bond, for example, ensures the contractor will comply with all local and state regulations. A bid and performance bond, on the other hand, is secured before the job even begins as a promise to the customer that the contractor will abide by the terms of the bid they provide.
The customer can file against the bond for financial restitution so the project can be completed properly. In some cases, other people can also make a claim against the bond if the resulting work negatively impacted the community.
What is a Contractor’s License?
When considering the differences between a bond vs. a license vs. insurance, a contractor’s license is the most unique. Just as a driver’s license demonstrates your ability to adequately operate a vehicle, so too does a contractor’s license demonstrate a contractor’s ability to perform work in a certain area.
In order to obtain a license, a contractor must pay a license fee, provide proof of certain types of insurance, and in some cases, they may also have to prove that they are bonded.
Different states have different requirements, so it’s important for contractors to hold licenses in the states where they work. It’s also important for customers to work with contractors who are licensed in the state where the work will be taking place.
What is Contractor’s Insurance?
Contractor insurance is meant to protect customers, employees, and others in the event of an accident. For example, liability insurance can protect site visitors in case of a slip and fall accident, while workers’ compensation can cover medical costs, lost wages, and even death benefits for employees who are injured, become ill, or die on the job.
There are other types of contractor insurance too. For example, a tools and equipment policy can repair or replace tools that may be broken or stolen. This type of insurance policy can keep the contractor from having to pay for damage and repairs out of pocket, but it can also ensure expensive equipment is replaced so that a job can be completed according to schedule.
Fill out our convenient online form if you have more questions about a contractor’s bond vs. a license vs. insurance. Not only can we answer your questions, we can set you up with the right bond or insurance policy for your next project.