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Whether you have worked in the construction industry or you yourself have searched for a contractor to complete a residential or commercial project, you have probably heard the terms “bonded and insured” thrown around. They are almost always used together, which leads some people to believe that they are the same thing.

It’s easy to get them confused, but they are definitely two separate things that contractors use to protect themselves and the clients they serve.

Here’s what you need to know about being bonded vs. insured.

What is a Bond?

A bond is something that contractors use before work has begun. It can even be used by contractors before they have been awarded the job. It outlines the liabilities of the contractor in regards to debt, default, and failures, ensuring that the client receives the quality of work they expect at the end of the project.

There are different kinds of bonds that include:

  • Bid and performance bonds guarantee cost and outline how the project will be completed
  • Supply bonds guarantee suppliers will provide the needed materials according to the contract
  • Maintenance bonds guarantee the work for a period of time after the project is complete
  • Subdivision bonds guarantee work will be completed within a certain timeframe

These bonds fall under the umbrella of contractor license bonds, but additional bonds, like commercial bonds and fidelity bonds, are also available.

What Does It Mean to Be Insured?

Most people have at least some familiarity with insurance, but types of insurance policies can vary widely, especially in the world of construction.

Some policies are geared towards protecting the contractor. For example, a tools and equipment policy can protect contractors in the event that the tools and machinery they use get broken, destroyed, or stolen.

Other types of insurance are meant to protect both contractors and clients. For example, a builder’s risk policy can protect against things like fire, wind, theft, and vandalism.

Additional policies include general liability insurance, which can protect against things like bodily injury and property damage, and pollution liability insurance, which protects against pollution exposures, contaminated sites, and the cost of cleanup, if necessary.

Bonded vs. Insured, and Do You Need Both?

Considering whether you need to be bonded vs. insured implies that you can choose one or the other. The fact is, qualified, quality contractors are required to have both because being bonded and being insured mean two different things.

The protection each offers is very different. Bonds ensure contractual obligations are met by outlining the main aspects of the job so the client knows what to expect. Insurance ensures unforeseen circumstances don’t interrupt or completely destroy the project, in addition to covering third-party claims of injury and damage.

Licensed contractors must post bonds for every project. Some insurance policies are required for licensing too, but not all types of policies are required, so it’s important for clients to consider very carefully what kinds of policies the contractor holds.

Repayment is a huge consideration for contractors, as is cost, in regards to bonds and insurance. Bonds must be repaid if a claim is made. Most of the time a claim isn’t made and the amount is returned, which makes bonds relatively affordable. Insurance, on the other hand, can end up costing a lot of money, depending on the policies you need and how often you file claims.

Instead of thinking about being bonded vs. insured, you should think about being bonded as well as insured, as both are vital to the completion of a project. Feel free to contact DJM Insurance if you have any questions. We would be happy to help you understand the difference between bonds and insurance, and we can help you create a custom policy that protects you where you need it most.

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