Does your company require a surety bond in order to operate legally, or will a standard insurance policy suffice? Or do you need a combination of both? Understanding the differences between surety bonds and insurance policies will help you determine the answer to this question. How much do you know about each of them? Are you familiar with the process of obtaining a surety bond? Keep reading to learn the answers to all of these questions and more, so you can make the right decision for your business.
What is a Surety Bond?
You’re probably familiar with insurance policies but maybe not with surety bonds. A surety bond is similar to insurance, as it goes through an underwriting process, but even that isn’t exactly the same. When a company takes out a surety bond, they’re essentially assuring the customer that they won’t make any mistakes. Whether this involves the vehicles that the company sells or the construction processes that they undergo, these bonds are put into place for the protection of the customer. An insurance policy, on the other hand, protects both the company and the customer.
Crucial Facts About Surety Bonds
In order to fully understand how a surety bond differs from an insurance policy, you need to know several crucial facts about them, including:
Surety Bonds Protect the Customer – The company (also known as the bondholder) needs to act ethically and follow the law. If they don’t, for example, and a used car lot sells you a lemon, you could end up out of luck without a surety bond. Thankfully, the government requires companies operating in certain industries to take out these bonds.
Surety Bonds Must Be Paid Back in Full – Generally, a bondholder only pays a premium, or a portion of the total amount of the bond when they take one out. However, if the company or bondholder messes up and the company that backed the bond needs to pay it out, the bondholder is responsible for all costs. This differs from an insurance policy, as all you’d have to pay out of pocket when calling in a claim is the deductible, not the full amount of the policy.
Surety Bond Claims Are More Specific – While an insurance policy has certain exclusions listed in the fine print, they cover many more issues than a surety bond. When you need to call in a surety bond, you need to fit into very specific circumstances that are outlined in the bond itself. Nothing else will be covered.
Surety Bond Underwriting is Different – When a company applies for a surety bond, the underwriters look at many varied factors, including their ability to pay for the entire bond amount should something go wrong. This is different from an insurance policy, where general risks are primarily taken into consideration.
Have Questions? Contact Charlotte Insurance
Want to learn more about surety bonds? Still have questions about what makes them different than an insurance policy? Contact Charlotte Insurance. Our agents can explore and explain all available options and put together the insurance coverage plan your business needs.