What is the different between surety bonds and liability insurance
Most people confuse between the word surety bond and the surety bonds insurance. Surety bonds and insurance are different forms for security served to the general public and other professionals. It is easily to mistake the meaning behind Surety Bonds are very common and used in industries make business fields safer.
Insurance offer the public with premiums, on a daily basis, and they offer compensation if any losses occur that the insurance company could cover. Insurance is a great thing for companies because they protect them from high risks that they might be facing and all they ask in return are regular payments.
Surety bonds on the other hand work very differently. These bonds are required by business because it gives them assurance that you will follow all the rules and regulations of the business. Other then rules and regulations, they expect your honesty and performance. Parties are protected by the surety bonds who may be affected by your own business for example the clients or the subcontractors.
In order to purchase the bonds, you need to pay for the premium for you to get bonded. If you are unable to fulfill your responsibilities under the bond, someone could claim on your bond. The premium covers all the underwriting and the pre-qualification costs for the bonds. The principle is responsible with the risk and if the claim against you is proven, you must pay the other party. If you are bonded, it gives the customer a powerful sign that it is safe to do business with your company. It also helps increase your business reputation and sends a dominant message if you want to market your company.
A few characteristics for Surety Bonds are:
* Is a 3 party agreement
* Gives assurance of the performance
* Guaranty that you will follow the rules and regulation
* Must provide financial obligations to the surety company
A few characteristics for insurance are:
* Is a 2 party agreement
* No longer risk on you but it is on the insurer
* Payments are expected to be paid
* Both parties must hold a legal obligation to each other
Surety Bonds and insurance are required by many businesses because they help compensate the risk factor in different aspects. Something similar about them is that they are both use for risk management tool but are just use for different purpose.
Common professionals that require the bonds are usually construction contractors, freight brokers, telemarketers, mortgage brokers and others. For these professionals, surety bond is an essential in order for them to get their license. Some of the popular bonds are auto dealer bonds, freight broker bonds, and contractor licence bonds. Contract bonds are very common bonds because it provides guarantee of the completion and the quality of a construction project. The bonds are usually obtained on a project basis. Usually people who get bonded also get proper insurance in order to operate without taking risks. Insurance application are usually more general, they are required by most individuals and companies.