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Bonded and Insured: What Does It Mean & What Is The Difference?

Last Updated: November 20, 2023
By Westfield Insurance

As a small businessowner, you’ve likely encountered the phrase “bonded and insured.” If you’re unsure what it means, you’re not alone. We’re here to help define each of these terms and explain the differences between them. In this article, we’ll cover the following topics:

What does it mean to be bonded?

A surety bond guarantees that your business will fulfill its contractual obligations. There are always three parties involved in a surety bond:

  • Principal – The business purchasing the bond to guarantee quality and completion of contracted work.
  • Surety – The company that issues the bond and financially guarantees your ability to complete the contracted work.
  • Obligee –The client that has requested the bond to guarantee that you will complete the contracted work.
  • If work is not completed as contracted, the obligee can make a claim for payment from the bond. When a surety bond company approves and pays a claim, they expect to be reimbursed. In other words, as the bond principal, you are financially responsible for approved claims.

    What does it mean to be insured?

    Business insurance policies, including general liability and workers’ compensation, pay your business in the event of a claim. They help you and your business avoid financial losses when things like theft, property damage, or injury occur.

    Bonded vs. Insured

    Now that you know what each term means, you may be wondering what the difference is between bonded and insured? Put simply, insurance helps protect your business while bonds protect a third party, often the public, from financial loss or damage due to non-compliance, wrongdoing, or misconduct.

    View the chart below for a breakdown of the key differences between bonds and insurance.

    Surety Bonds Insurance
    Protection Surety bonds protect the client and/or public. Insurance protects the policyholder (you or your business).
    Claims Control If default occurs, surety companies have variety of solutions to meet the obligation. Insurance companies have no control over the project. A claim is either approved and paid or denied.
    Repayment Terms The bond principal is financially responsible for approved claims. The policyholder does not need to reimburse the insurance company.
    Number of Involved Parties Three: obligee, principal, and surety. Two: policyholder and insurance company.


    Does my business need to be bonded?

    A wide range of businesses need surety bonds. That’s because these bonds provide a financial guarantee or assurance of compliance with contractual agreements or federal and state regulations. In fact, surety bonds are often required by law. While there are a variety of reasons why businesses or professionals may need a surety bond, here are some common scenarios.

    • A business owner needs a bond to guarantee the payment of state sales taxes.
    • A contractor must provide a bond when bidding on a public project.
    • A notary is required by law to submit a surety bond with their application.

    Insurance and bond requirements vary based on state, industry, and business activities, so be sure to check with your local Westfield agent to ensure you’re covered.

    How to obtain bonds and insurance

    Now that you know when these things are needed, you may be wondering how to get bonds and insurance for your small business. The application process for a surety bond is quite similar to obtaining a loan from a bank. You’ll have to provide business and personal information, including financial statements and references. This is because the surety bond provider wants to ensure your character, capacity, and credit aligns with their business model.

    With insurance, you’ll work with an agent to identify which type of business insurance you need. From general liability and commercial property to equipment breakdown and cyber insurance, there are a variety of coverage options to consider.

    Surety bonds and business insurance can be highly complex, so having the right team by your side is critical. When choosing a surety bond or insurance provider, make sure you’re choosing a trusted company that is well versed in your industry and has a history of financial stability.

    Benefits of being bonded and insured

    Bonds and insurance provide peace of mind for business owners, as well as customers and clients. In fact, the added protection they provide can benefit your business in a few key ways.

    Protects your small business from financial losses.

    Insurance policies help protect businesses from financial loss. Forgoing insurance and bonds may save you money in the short-term, but all it takes is one costly lawsuit or accident to put your business in a precarious financial situation. For example, if a company car is damaged in a storm, paying out of pocket for the repair could put a strain on your business.

    Reassures clients that you run a reliable business.

    Carrying the appropriate insurance coverage and needed surety bonds can boost trust in your small business. That’s because being bonded, licensed, and insured reassures the client that they are not only protected, but also working with a reliable, reputable, and financially sound professional. Being bonded and insured can also help set your business apart from uninsured or unbonded competitors.

    Ensures you comply with requirements and regulations

    Insurance and bonds are often required before you can even bid on work. Many states require small businesses to carry certain types of business insurance coverage , such as workers’ compensation. Similarly, states or local laws require businesses to have certain bonds. Even when not required by law, most clients will expect a business to carry general liability insurance and may require additional coverage or bonds before agreeing to work with you.

    Types of surety bonds

    Contract and commercial bonds are the two main categories of surety bond issuance. The big difference between these bond types is the intended purpose.

    • Contract bonds – Also referred to as construction bonds, these bonds provide a financial guarantee for construction projects.
    • Commercial bonds – Sometimes referred to as business bonds, commercial bonds can be found in almost any industry and are needed for a wide range of reasons.

    Common types of contract bonds

    Performance Bond

    A performance bond in construction guarantees the performance of the terms of a written contract. It protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.

    Payment Bond

    A bond that ensures that the contractor will pay specified subcontractors, laborers, and materials suppliers associated with the project.

    Maintenance Bond

    A bond that offers protection in the event of faulty or defective materials, even after a project’s completion for a specified time period (similar to a warranty).

    Bid Bond

    A bid bond in construction ensures that a bidder for a supply or construction contract will enter the contract within the stipulated timeframe if the company wins the bid.

    Supply Bond

    A bond that ensures a supplier will produce the supplies or materials specified in the contract. If the supplier were to default, the bond protects the purchaser from any losses.

    Common types of commercial bonds

    Court Bond

    The court often requires either the plaintiff or defendant to post a court bond. These bonds are used to demonstrate financial responsibility to the court while the case is being heard.


    • Appeal bond
    • Attachment bond
    • Replevin bond
    • Release of lien bond

    Probate or Fiduciary Bond

    These bonds guarantee the good faith of a person appointed to handle another person’s private affairs.


    • Administrator bond
    • Executor bond
    • Guardian bond
    • Trustee bond

    License and Permit Bond

    Often required by municipalities, state departments, or the federal government, these bonds guarantee consumer protection before granting licenses to businesses such as electricians, plumbers, and car dealerships.


    • Contractors’ license bond
    • Motor vehicle bond
    • Lost or defective title bond
    • Mortgage bond

    Miscellaneous Bond

    Failing to fall into one of the previous classifications, a miscellaneous bond is another type of financial guarantee. It protects consumers from certain forms of breached agreements or contracts.


    • Wage & Welfare Bond
    • Utility Deposit Bond
    • DMEPOS Bond
    • Lost Instrument Bond

    Let Westfield Help You Navigate Bonds and Insurance

    Surety bonds and commercial insurance can be complicated, but now that you know the differences between them, the benefits they provide, and the types of bonds your business may need, you’re ready to take the next step. With Westfield by your side, you can take on the world of bonds and insurance with confidence. Find a Westfield agent and get started today!

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