Insurance Bond

In some industries, clients may require surety bonds before they agree to work with your business. Surety bonds protect the client because it guarantees that your business will honestly and faithfully perform all of its duties and comply with the law. If there’s an issue, the client can file a claim with the surety to cover the costs to fix the problem. If this happens, the surety will require reimbursement from your business. 

 A “bonded” small business means it purchased a surety bond. When it comes to bonds, there are three parties involved: 

• Surety: The insurance company issuing the bond
• Obligee: The party requiring the bond
• Principal: The purchaser of the bond

Bonds guarantee a business will complete the work as agreed upon in a contract. Bonds cover against incomplete work. So, if a company doesn’t act honestly or perform as defined in a contract or court document, the client can file a claim with the surety. Businesses may get bonds because it: 

• Can protect your small business’ reputation if something goes wrong with your client
• Helps meet legal requirements to do business or perform a role
• Shows your business is financially stable and can perform according to the contract

There are four categories of license and permit bonds: 

• Compliance bonds guarantee that a company will do its business in accordance with the law. For example, a municipality requires plumbers to comply with local building codes.
• Public safety bonds are also known as indemnity bonds. They protect the public from financial loss due to physical damage. For example, some states require certain businesses to post road bonds in case heavy or oversized loads cause road damage.
• Public protection bonds, or good faith and credit, protect the public from financial loss due to fraud or unfair dealings. Two examples of this are mortgage broker bonds and consumer lender bonds.
• Financial guarantee bonds guarantee the payment of taxes or fees. For example, fuel tax bonds guarantee the payment of fuel taxes, which are a state requirement.
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There are a few different scenarios when small businesses need bonds. This can include: 

• Fulfilling a client or government contract: Clients, governments or municipalities can require businesses to get a bond to guarantee the work your business does.
• Legally conducting business in a profession: Certain industries and types of work need to have a bond.
• Assuring clients your business is reliable: Getting a bond from a surety company shows clients your business guarantees to operate according to an agreed upon contract and comply with laws and regulations.

Companies may need a business license and permit bonds, such as: 

• Contractor’s license
• DOT permit, erosion and sediment control
• Retail and professional services

Other types of businesses that may need a bond include: 

• Tax collectors
• Treasurers
• Notaries

Source: www.thehartford.com/small-business-insurance/bond-insurance-for-small-business