Bonds Versus Insurance

| Bonding, Business Insurance.

bonds versus insurance

At Safeguard Insurance we often receive phone calls from Nevada business owners wondering whether they need a bond or insurance, or both.  It is important to understand the difference betweens bonds versus insurance to know which your business needs.

Understanding Surety Bonds

First, let’s start with the basics of surety bonds.  Bonds are a financial guarantee between several parties.  The first party is the principal who is undertaking the obligation that requires a bond.   You, the business owner, are the principal.   The surety bond company is the second party and provides the guarantee of payment or, in some cases, of performance.   The last party is the obligee who receives the benefit of the surety bond.

The surety company provides a guarantee of payment or performance to the obligee, however they still expect the principal to reimburse them for any costs related to a claim.   In reality, a surety bond is a credit relationship.   Think of a bond as a loan you hopefully never need to use.  Surety bonds are underwritten much like a loan would be.   Expect your personal credit report to be pulled.  The surety underwriter may also require personal and business financial statements, depending on the size and type of bond.  A personal guarantee by the business owner(s) is almost always required, no matter what type of bond.

Understanding Business Insurance

Insurance, in contrast, transfers the risk of financial loss to the insurance company.  An insurance policy does not expect the policyholder to pay them back for the cost of settling a claim.   Instead, the risk of providing insurance for your business is spread out amongst all policyholders.  Claims are paid using the monies received from premium payments by policyholders.

So, does your business need a bond or insurance?   The answer is likely both.   Many businesses are legally required to secure bonds to guarantee a business license.   For example, a contractor is required to provide a license bond to protect the public.   Many retail stores are required to provide a sales tax bond to guarantee payment to the State Department of Taxation.   Some municipalities require a bond to secure a local business license.   There are also fidelity bonds that protect from theft of property or embezzlement of funds in retirement accounts.  The are literally hundreds of surety bonds used for many different purposes.

Still Have Questions?  Call Safeguard Insurance!

If you have questions about surety bonds or business insurance, contact the experts at Safeguard Insurance in Las Vegas NV.   We can find you the right surety bond or insurance program, at the right price.

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