Insurance Policies vs Bonds

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In commercial practices, it is common to ask if a company is insured. However, you may also hear a company indicate that they are bonded. If you are trying to decide between a company carrying an insurance policy or a bond, here is some information that might help you out.

The Differences

The types of coverage provided by these two financial services is one of the primary differences between the two. An insurance policy is a type of risk management secured by a contract between an insurance company and the insured. The insurance provider makes a promise to the policy holder that they will be compensated in the event of a covered loss (as outlined in the contract).

With a fidelity bond, such as an employee dishonesty bond, it is an insurance policy that cannot be traded nor can it collect interest like a surety bond. These can either by first or third party bond contracts. With a first party, the company holding the bond can be protected from intentional wrongful acts on the part of their employees. A third party protects from wrongful acts as a result of contract workers.

Losses Covered

Between both the insurance policy and bond, there are many different losses that could be covered. Insurance policies are uniquely written to address risks and exposure associated with certain business practices, environments, and locations. Coverage might include property damage, legal cost liabilities, and commercial automobiles. Bonds are also design to provide financial assistance and protection in areas of loss, but these are often related to operations where there would need to be a guarantee from loss. This includes contract work and financial transactions.

Knowing the difference between bonds and insurance can help you when are looking to hire contractors or small businesses for specific services. It can be an either/or decision, but you never want to work with a company that does not offer some protection from loss and liability.


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