In certain professions, you will need bonds and insurance to protect you from all that is out there. While they are lumped in the insurance category, bonds are not insurance. Bonds help to protect a business, its customers, and government entities. They help to provide some financial guarantee, but they are not a form of insurance. 

Who Is Involved In The Use Of A Bond?

Bonds are agreements between three parties:

• The Principal: who purchases a bond
• The Obligee: a person who receives a benefit
• The insurance company: helps provide the application and monetary amount.

Bonds are not meant to pay for claims but will provide financial guarantees to those purchasing the bond. While most benefits go to the owner of the bond, there are benefits for every party when the right bond is purchased. 

Types Of Bonds

There are many different types of bonds that can help cover your business in times of stress. Here are some of the common types of bonds to choose from.

• Surety Bonds: These bonds ensure that a business or individual fulfills their obligation. Surety bonds protect the project owner and ensure that all contract terms are met. These bonds are commonly used in construction projects and permits for businesses.

• Fidelity Bonds: Protecting your business from dishonest employees is important if you want to keep the company afloat. Fidelity bonds will protect you if you have theft, embezzlement, or fraud from an employee. 

• Performance Bonds: For construction projects and service industries, performance bonds will help keep everyone on track. Contractors need to meet your agreed-upon terms, or a performance bond will come into play. The contractor will have to compensate the obligee if they don’t fulfill their duties.

• Payment Bonds: This bond is all about monetary payments. A payment bond protects against liens on a project due to lack of payment. 

• License and Permit Bonds: These bonds are used for contractors, auto dealers, and freight brokers. This bond will ensure that a business complies with local, state, and federal laws.

• Bid Bonds: Once you get a bid from a contractor or a professional company, you can have a bid bond implemented to ensure you don’t pay unnecessary amounts. The project owner will be protected from a bidding war and lower the risk of project delays. 

How Bonds Can Protect Any Type Of Business

The biggest thing that bonds can help protect your business from is incomplete work. Companies can implement bonds to protect them from fraud, unnecessary payments, and unfulfilled promises. Having a bond and insurance will protect you in all types of situations. States and local laws may also require businesses to get bonds when opening their business. 

Securing bonds will also help assure your clients that you are reliable. Your business operation will be legitimate and provide quality services to a client when you know that a bond could make you pay a higher amount if you try to scam them. 

Securing A Bond From Your Insurance Company

Not all insurance companies will offer bonds or the bond type you need. One of the first steps is to find a surety company or agent who knows the best bond type for your business. You will get a quote for the cost of the bond depending on what it will cover. 

Once you get a quote, the surety company will create a bond application. This application will need to be filled out by the business and the obligee before each project. After a bond is issued, both parties will sign the contract to agree that either party will be reimbursed if the contract is broken. Working with a qualified agent will provide you with the best bond option. Professional agents will suggest the right amount of coverage for your specific industry and set your business up for a prominent future. Reach out to Tower Insurance Brokers to get a quote and start your bonding and insurance journey.