The words “bonded,” “licensed,” and “insured” are used in different industries, mainly in the sectors that hire contractors and subcontractors. Generally, it is a common word in businesses.
It is said that businesses that have these three requirements are reliable. Customers are being told to work with companies that have all three.
A person can figure out what company has these three through their advertising. With that being said, people are confused or don’t know what this means.
They have questions like, “What does this mean?” “What are their advantages?” “What can customers get from companies that have these?” These are the questions they tend to have in hiring companies.
So, to remove the confusion, we broke down everything you need to know. From the individual terms to advanced considerations that will help the customers understand everything for their businesses.
What it Means to Be Licensed
Having a license makes a company reliable and competent enough to bring quality products. It brings the company a specific competence, meets the requirements, and legal enough to operate in your place.
It’s like a professional. They have to have a license to be able to work with people. It also shows that the person passed everything before getting their license.
In getting the license, companies must meet requirements, including some tests. They have to pass the exam before they can get the license and operate in your municipality.
For example, in the construction industry, they must pass an exam before conducting a project in a particular place.
Home improvement contractors also need to perform types of work. Once they acquire their license, they can print their license number in their advertisements.
A client can also look up the companies’ license numbers and performance history in the business bureau.
In general, there are some technically challenging kinds of professions. It involves risking a Personal Injury to their customers.
With this, their test will be more complex and required. There is also a licensing fee to be able to acquire their license.
What it Means to Be Bonded
Being bonded describes a company that is financially secured if a client files a claim against the company. The money is in the hand of the state and not under the company.
A bonded company is the one that bought a surety bond.
Parties Involved in Surety Bond
Before getting a surety bond, there is an agreement between three parties. Listed below the three parties involved:
- The Principal – This is the one who purchased the bond. Usually, this is the company that will be giving services to their clients.
- The Obligee – This requires the bond before passing it to the principal to operate. The obligee is usually the state or municipal institution.
- The Surety – This is the one that issues the bond. The surety is the insurance company.
Surety bonds cover and protect the client who hires the business. They protect the client from any possible losses because of unaccomplished work, damages, or other company failures.
When this happens, the clients can file a claim against the company. They can receive compensation for the losses from the surety.
The company or the principal will repay this.
Types of Surety Bond
In general, there are two types of surety bonds someone can get. These are contract bonds and commercial bonds.
The first type of surety bond is commercial bonds. Commercial bonds are required for businesses to work on projects in partnership with the government or municipal entities.
Commercial bonds will protect the public institutions from the losses in the project. The failures will happen if the company is unable to follow the laws, rules, and regulations.
The provider of surety will be the one paying the claim on the bond. In particular, if the company was unable to resolve the problems.
When this happens, the principal will be the one paying the surety provider.
On the other hand, the second type of surety bond is called the contract bond. Contract bonds are required in the construction industry.
That’s why it is also called “Construction Surety Bonds.” Nonetheless, contract bonds can be applied to other sectors as well.
These are the most common contract bonds:
- Performance Bond – Performance bonds ensure that the company will be able to do its services. This is included in the agreement between the company and the client.
- Payment Bond – Payment bond ensures that the employees, suppliers, and subcontractors are protected from late payment and non-payment.
- Bid Bond – Bid bonds will guarantee the client that the bidder will take the job once they are selected.
- Ancillary Bonds – Ancillary bonds work with performance bonds. They will ensure that the company will meet the contract requirements.
On the other hand, performance and payment requirements are excluded in ancillary bonds.
What it Means to Be Insured
All three, being insured is the most understood by many. Some heard it before, and some think that it is essential.
Well, a company needs to be insured. When the company is insured, paying the client from risks will be transferred to the insurance company.
There are types of commercial insurances that companies can choose from. It can protect businesses from any risks.
However, companies do not need to get every kind of insurance.
If a company wants to be licensed, bonded, and insured, they probably get the most traditional insurance policies. Traditional insurance policies, like workers comp and general liability insurance, are usually needed by every business.
Additional Insurances
Like people, businesses have different needs when it comes to the coverage of insurance. Companies get insurance depending on the industry, the size of the company, and the risk factors.
Some risk factors are unique in different companies. To understand the differences, companies should consult an expert broker. Expert brokers will help the companies with the right insurance for your company.
They will help the company to find the best value and proper coverage. They can help a business because they understand the industry of a company.
The Differences Between Bonds and Insurances
Bonds and insurances are usually confused with one another. They are common in terms of providing financial compensation when the client filed a claim against the company.
Although they are almost the same, there are some significant differences between them.
In a surety bond, the claim will be against the surety company that issued the bond. On the other hand, in an insurance policy, the claim will be against the insurance company’s policy.
The company also needed to reimburse the surety company for the amount of money paid on the claim.
The main difference between them is the insurance protects the business from the losses in the project. At the same time, bonds protect the client when the company was unable to do its job.
Reasons Why Your Business Should Be Licensed, Bonded, and Insured
Although it is not required to be licensed, bonded, and insured, it still benefits the company. It offers a sense of security for the companies’ clients.
On the other hand, having a license can protect the business as well. There are times that the clients refused to pay. With the license, it can help the company to get the damages.
Additionally, being bonded allows the company to establish trust with its clients. Bonds give the clients assurances that they are financially secured in possible losses.
In particular, if the company was unable to fulfill its contractual obligations. Bonds will also save the company’s reputation if they can’t meet the customer’s expectations.
Besides, being insured shows that the company is financially stable. Having insurance will bring reassurance to the clients and companies that are interested in working with them.
The insurance will also protect the business from financial loss when something goes wrong. It also allows the company to overcome economic challenges.
Clients and businesses are interested in working with a company that is financially secured and reliable. Companies and clients do not want to be part of a project with companies that can go bankrupt because of a lawsuit.
Being licensed, bonded, and insured can secure the future of the company.
Conclusion
A client needs to compare different companies. It is essential to research their reliability.
Being licensed, bonded, and insured can prove that they are competent and responsible enough to handle a project.
It is essential to be wise in deciding which company or people to work within a nutshell. People should be picky when it comes to their business.
Once they trust a wrong company, their business may suffer a lot. They can get financially unstable and eventually, get bankrupt.
Choosing a company that is licensed, bonded, and insured is a wise decision. Clients will know that they are reliable and competent enough to be part of the client’s project.
Loved this article? Read more of this in the following articles:
- Is General Liability Enough to Protect Your Business
- How To Make The Necessary Preparations As A New Business Owner
- How to use a life insurance policy to be debt-free: A Long Term Solution
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