The number one thing arguably any business in the world wants to avoid is to suffer any unexpected losses.
Unexpected losses can seriously rock the very foundation of your endeavor, and depending on how severe they are, they can even destroy it entirely. That’s why any responsible business owner needs to make sure that their business is insured.
Aside from personal safety, clients and potential business partners are also more inclined to collaborate with a venture that carries the appropriate insurance coverage.
By choosing the right type of insurance for your business, you won’t only be protecting your personal assets, but you’ll also instantly appear more reliable to anyone around you.
Now, depending on the business structure, for some businesses choosing the right type of insurance coverage won’t be enough to encourage others to collaborate with them. Instead, some businesses will also be required to purchase bonds.
While insurance and bonds are not the same, they are both great business risk-management tools that will provide any business owner with an additional layer of security.
But before we dive any deeper into what it actually means for a business to be bonded and insured, we must first try to make these two points a bit clearer.
What does it mean to be insured?
As previously mentioned, businesses buy insurance policies in an attempt to protect themselves against any unforeseen circumstances. These can include – but are not limited to – unexpected losses, lawsuits, natural disasters and so on.
So, when a business is insured, that means that they’ve transferred a number of risks to a third party – in this case, the insurance company.
By paying the insurance premium, a business eliminates the need to cover any unexpected losses out of pocket. That being said, it’s important to note that not every business will need the same type of insurance.
There are some insurances that apply to most – if not all – businesses, but there are also others that are more niche or industry-specific. So, for instance, if you’re running a business selling hand-crafted goods, you probably won’t need to get a vehicle insurance policy for your business.
Additionally, it’s also important to keep in mind that as a business, you need to make sure you have all of your insurance policies, as well as any other contracts, well-organized. That’s why many businesses use tools, such as the Couranto data management solution, to have all of this data organized and easily accessible at any given moment.
Different types of business insurance
Here, we will discuss just some of the most common types of business insurance. Of course, there are many others, but these 4 are simply the most common ones.
Workers’ compensation insurance
Generally speaking, workers’ compensation insurance will cover any medical costs and lost wages of your employees in case of any work-related injuries or illnesses. This is arguably one of the most important types of insurance any business will need to have.
Commercial property insurance
By obtaining commercial property insurance, you’ll be making sure that any potential damage done to your commercial property will be compensated for by the insurance company. It covers the physical aspects of your business, such as the building, equipment, and so on.
Commercial auto insurance
As the name suggests, a commercial auto insurance policy will cover any legal bills, property damage and even medical bills in case a company vehicle is involved in any type of accident.
Commercial umbrella insurance
A commercial umbrella insurance policy will provide additional coverage for liabilities in case a policy’s limit has been reached.
What does it mean to be bonded?
When a business is bonded, that means that it has purchased a surety bond. Surety bonds are legal agreements made between the principal, the obligee and the surety.
The principal is the person (organization, business) that purchases the bonds. The obligee is the party that requires the principal to purchase the bonds in order to be able to do business. The surety is the insurance company that issues the bond to the principal.
As such, surety bonds protect the person (organization, third-party) hiring a business from any possible losses. That being said, it becomes quite clear why anyone would be more inclined to do business with a bonded endeavor rather than the one that’s not.
The main difference between being bonded and being insured is the fact that, unlike insurance, you will need to reimburse your bond carrier once they cover a claim. Additionally, it’s also important to mention that bond requirements will differ in each state. And even though they’re used across various industries, these three bond types are the most common ones:
Construction or contractor bonds, also commonly called license and permit bonds, are the type of bonds that indicate that a construction company is agreeing to comply with government-issued building regulations.
This bond is most commonly used to ensure a client that the contractor/construction company they’ve hired will get the job done.
Janitorial bonds are commonly issued to professional cleaning companies. They serve the purpose of insuring and even reimbursing a client in case of unsatisfactory work.
Fidelity bonds are the most common in the IT industry. They are used to protect businesses against any accusations regarding theft, unlawful digital data access or transfers and fraud. Here, you will have the option to choose between first-party and third-party fidelity bonds.
Why is being insured and bonded really matters?
With all that’s previously discussed, it becomes quite apparent why being insured and bonded is important for any business. Not only does it protect your own company from potential losses, but being bonded and insured will also ensure any potential clients that your business is legit.
On top of that, keep in mind that serious clients that bring lots of money usually want to be ensured that their future business partners – i.e., your business – will carry general liability insurance. And they will also often require additional coverages or special bonds on top of general liability insurance before they decide to sign a contract.
Should a business be bonded, insured or both?
In the end, to be as clear and as brief as possible, any business that hopes of reaching success should be both bonded and insured. However, make sure you learn which types of insurance policies make the most sense for your industry and niche, in particular.
Trying to go for all business insurance policies will simply be a waste of resources because – as we mentioned in the beginning – not all businesses will require the same types of policies.
Moreover, surety bonds will help encourage and attract potential business partners and clients, which will only positively affect your entire endeavor. Just like with insurance policies, make sure you choose the right type of bond for your business to ensure maximum efficiency.
Knowing exactly what you need for your business will help you bring it to a higher standard. That will not only bring you plenty of good in terms of protecting your endeavor, but it will also make your business appear more reputable and attractive to any potential clients and partners.
And, after all, that should be the end goal of any successful business person.