Contractor Bond vs. General Liability Insurance
Are you running a small business? Here is why you should consider a contractor bond or a general liability insurance!
Small business owners want to do their job the best way they can. By making their clients happy, contractors maintain their reputation in the niche! And one of the ways to ensure the high quality of their jobs is to have insurance for possible accidents and all things that can cause damage or work stoppage.
Most states oblige small businesses to be bonded and insured. Also, clients are more likely to hire companies that provide coverage and warranties for their work. They need contractors who will adhere to the contract terms and finish projects on time. If that doesn’t happen, clients must have some certainty and indemnity.
Many things can happen while you and your workers are on site. Depending on the job type, your company can face many risks. Different issues can interrupt your job, causing delays and backlogs. So if you wonder what is a contractor bond and general liability, read on and think of them as the best ways to protect your business.
What It Covers?
A contractor bond ensures that your company will meet all contractual conditions. Still, it won’t cover shoddy work. That’s why surety companies oblige you to have a good reputation and work history before issuing a bond. You can’t just be negligent and irresponsible and expect others to pay for that, as that won’t happen.
This coverage will work in case of damages due to unforeseen situations out of the contractor’s control. For example, they could lack workers due to the pandemic, which causes delays. It’s a force majeure, but the company must deal with the consequences. In that case, a bond guarantees indemnity to clients due to delays.
General liability includes damage coverage and workers’ compensation. It will come in handy in risky businesses, like roofing or building construction. It covers some worst-case scenarios like electric shocks or falls from height.
Who Provides Coverage?
Bonding includes a third-party surety company liable if contractors fail to meet the agreement and damage the client somehow. Getting this type of bond is a complex and rigorous procedure. It will be a positive sign to clients if you get it as surety companies won’t guarantee anyone.
A general liability policy will cover damage to other people’s property. It also protects workers in case of injuries while working. That puts off a significant burden from the client’s back and protects contractors against financial loss and lawsuits.
Who Pays Indemnity?
The cost of a Contractor Bond varies depending on several factors. One factor is the credit history of the contractor. Another factor is the amount of business the contractor does. The third-party company provides indemnity to damaged clients instead of a contractor. But they oblige them to repay that debt over time. A bond is only a form of security that guarantees you will make these payments. As for general liability coverage, you pay a premium to an insurance company. Then, your business is financially protected if something goes wrong. This type of coverage is more expensive than contractor bonds, but it’s more cost-effective in the long run. If something happens, you won’t have any additional expenses, as your insurer pays on your behalf.
A Must or Not?
Bond coverage protects the party you are working for from negligence, unexpected delays, etc. If you want to be bonded, you must follow state and federal laws. If not, the licensing board can file a claim against the bond and make you pay high penalties.
Liability insurance is not mandatory but highly desirable. It’s always better to be safe than sorry. So you can pay for it and never use it. The premium amount will depend on many factors, as seen here. But if you need it sometimes, you’d be glad to have it.
Both coverage types come with costs but some benefits, too. Having them means you can provide a solid warranty for your job. It means you can set higher rates than uninsured companies.
Contractor bond and general liability coverage are excellent safety nets for your company. A licensing board can require them to make your business legal and present on the market. That can be a cost you won’t pay willingly, but the protection it provides for all parties included is worthy of it.