Bonds vs Insurance

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Do you have the right coverage?

In this article, we’ll break down the difference between bonds vs insurance so you can make informed decisions.


With any business—from restaurants to brick-and-mortar stores—reliable results are essential for success. And while business is built around consistent quality, there’s no way to guarantee that the unexpected won’t happen.

Insurance and bonds are designed to provide much-needed financial security in the event that something goes wrong.

Though they have similar intent, bonds and insurance are two different products. Knowing the difference ensures that businesses have the right protection for themselves and their customers.

An independent insurance agent’s knowledge can be invaluable in helping you understand the differences and similarities between bonds and insurance. This blog will guide you through the distinctions between these two financial products.


What is Insurance?

Insurance isn’t just a valuable safeguard against financial loss, it’s often a mandatory part of property ownership. (For example, in Florida, certain forms of auto insurance are required for everyone on the road.) Common types of insurance include home insurance, life insurance, and business insurance.

Your insurance policy isn’t a product, but a contract between you and the insurance company. Insurance works by pooling premiums together to create a fund to reimburse losses covered by the contract.

Insurance is the key to protecting families and businesses from financial ruin, offering peace of mind when surprise setbacks occur. If you experience damage, theft, or another type of loss that’s covered by your policy, you can file a claim to request that insurance cover it.


What are Bonds?

Like insurance, a surety bond is a contract, but it involves three parties:

The principal is a professional or business that purchases the bond.
The surety is the company that sells and guarantees the bond, acting as a safety net for all parties if duties are unfulfilled.
The obligee requires the purchase so they have protection from any potential losses if the principal doesn’t keep up their end of the bargain.

There are four main types of surety bonds—contract surety bonds, commercial surety bonds, fidelity surety bonds, and court surety bonds—as well as many subcategories within each type. The most common are contract/commercial surety bones and fidelity bonds.

Surety Bonds

Contract and commercial surety bonds are generally purchased by licensed professionals (such as contractors, notary publics, and establishments that sell liquor and lottery tickets) as a way of guaranteeing the quality of their work.

For example, a contractor might be required by a government agency or homeowner to provide a bond to protect against their work. If their work isn’t up to code or they never finish the job, the surety company will hire another contractor to finish the job.

Fidelity Bonds

Many businesses also elect to purchase fidelity bonds to protect against fraud. Fidelity bonds, often called employee dishonesty insurance, safeguard employers from the financial repercussions of employee misconduct, such as theft or embezzlement.

It’s important to note that your general liability policy will only cover accidents, not intentional acts. In this case, insurance isn’t always enough.


Bonds vs Insurance: Which One Do You Need?

Bonds and insurance are both tools used to reduce risks and provide protection from financial loss. However, while they provide similar protections, they serve very different purposes.

To put it (very) simply, insurance tends to cover unforeseen and/or accidental loss, while bonds cover acts that you (or an employee) did knowingly.

For example, if one of your employees stole a customer’s jewelry, a fidelity bond may reimburse the customer for their loss, while an insurance policy would not. On the other hand, if your construction site was destroyed by a hurricane, you would have to turn to your insurance policy over your damaged equipment, not your contract surety bond.

The biggest difference between the two is that insurance contracts are between two parties (you and your insurance company), while bonds are between three. As a result, you get a much more specific level of coverage with bonds vs insurance.

If you’re trying to decide which one you need, the “bonds vs insurance” debate can be settled easily. The answer is often both!

Insurance is necessary to protect your business against unforeseen circumstances such as hurricanes, while bonds protect your customers and clients.


Get the Right Coverage

Both bonds and insurance provide financial security for businesses and their customers in the event of unexpected setbacks and both solutions offer peace of mind when surprise setbacks occur.

Knowing the similarities and differences of each product is key in determining which one best serves your business needs.

Protecting your business is the key to long-term success and customer satisfaction. Get expert help today by connecting with one of our independent insurance agents to understand if a bond or insurance is right for your business.

The post Bonds vs Insurance appeared first on Harry Levine Insurance.

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