Surety bonds are used in numerous industries to make them safer. Bonds exist to safeguard the interests of the general public and the authorities that regulate different trades.
It’s easy to mistakenly think surety bonds are like insurance because the terms “surety bonds” and “surety bond insurance” are both used to describe bonding. However, these two forms of security serve different purposes.
You and other insured entities contribute insurance premiums on a regular basis. The insurance company will offer you compensation if you incur any losses that are covered by the insurance. Insurance companies protect you by mitigating the risks you face in return for regular payments.
Surety bonds work differently. You are required to use surety bonds to guarantee your honesty, performance, and that you abide by the rules, laws, and regulations that govern your industry. Instead of protecting you, they protect parties affected by your business, such as clients, subcontractors, or the state.
You pay premiums on your bond. If you fail to fulfill your obligations, you might get a claim on your bond. With bonds, the premium covers the underwriting and pre-qualification services costs. Thus, the entire risk stays with you as the principal. It is your responsibility to repay affected parties when a claim brought against you is proven. As a bonded company, you send a powerful sign to your customers and relevant that you are a trusted and safe company to do business with. It boosts your business reputation and sends a powerful message in marketing your company.