What does a surety bond cover?
Surety bonds provide assurance that your customer will be compensated should something go wrong during your company’s contractual work. This can include incomplete contractual agreements, failure to meet contractual criteria, and failure to meet legal regulations. It can also cover your business if there are bond requirements to hold an industry license or if your employee steals from a client.
Incomplete contractual agreements
If your company does not fulfill the work promised within a contract, your customer can recoup their damages from the surety (the financial backer). They can recover damages up to the bond’s insured amount. This helps customers know they will be compensated if your business does not complete the contracted work.
Failure to meet contractual criteria
Each contract has a different set of important benchmarks that need to be accomplished during the course of the project. These criteria can range widely: work-based features, completion within a certain timeframe, or other contractual obligations. If your company does not follow the contractual agreements, then your customer can seek reimbursement from the surety bond provider.
Failure to meet legal regulations
If there are federal, state, or municipal guidelines that are not followed during the contracted work, there is a possibility that the entire project may need to be completely redone. If your company misses legal requirements, a surety bond can help your customer recoup damages.
Bonded licensing or permit prerequisites
Each state has different requirements for industry licensing and permitting bonds. If you want to start a business, be sure to review federal and state guidelines around which bonds are required before you start working with customers. In many states, real estate agents, financial institutions, taxis, notaries, and more need a special type of bond before opening their doors.
Some bonds will cover your company if one of your employees steals from a customer. Typically, if you require coverage against customer property damage, you will need to purchase a general liability insurance policy.
What does a surety bond NOT cover?
Each surety bond is different depending on your industry and desired coverage. However, most bonds will not cover damage to customer property, job errors or omissions, or injuries that occur during the contracted work.
A surety bond will not cover property damage. If there is damage to a customer’s property, then you will need to submit a claim through your company’s general liability insurance policy. Damage to your business’s equipment or tools during a project would require either inland marine insurance or commercial property insurance depending on how and when they are broken.
Errors & omissions
Errors and omissions during the course of a contract will not be covered by a surety bond. If you or your employees make a mistake, you will require a professional liability insurance policy for coverage.
Injuries to third parties are covered under general liability insurance and employee injuries will require a workers’ compensation insurance policy for coverage.