The Difference Between Surety Bonds and Insurance: What You Need to Know

No matter your organization’s size, industry or location, having a solid risk management strategy is essential. Without proactive planning, unexpected issues could disrupt operations and lead to serious financial consequences. Two key tools that can help mitigate such risks are surety bonds and insurance policies. While they may seem similar at first glance, they serve different purposes and operate in distinct ways.

What Is a Surety Bond?

Surety bonds are agreements that provide financial reassurance that your business will fulfill certain obligations. If your company fails to meet these responsibilities, the bond can help affected parties receive compensation. The following frequently purchased types of surety bonds are often required by clients and government agencies to establish accountability and financial reassurance:

• Contract bonds

• Commercial bonds

• License and permit bonds

• Performance bonds

• Payment bonds

• Bid bonds

• Maintenance bonds

• Fidelity bonds

Key Differences Between Surety Bonds and Insurance

Although both surety bonds and insurance aim to protect against financial loss, they function differently. Consider the following distinctions:

• Who’s covered—Traditional insurance typically covers your business and its employees, potentially offering financial aid following covered incidents. In contrast, a surety bond is typically designed to financially protect other parties, such as your clients.

• Duration—Insurance policies are usually active for a set term, such as six months or a year. Surety bonds, however, are often tied to a specific project or client and expire once that commitment is fulfilled.

Why Both May Be Necessary

While they serve different roles, both insurance and surety bonds can be vital to your business’s success. In many cases, clients or government agencies may require one or both before entering into a contract or granting a license. Having the right coverage in place not only financially protects your business but may also build trust with partners and customers and help you prospect for new opportunities.

Learn More

Contact Universal Tax & Multi Services today to discuss your insurance- and bond-related needs.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.