What is the Difference Between Bonded and Insured?

Bonding and insuring are both forms of protection against financial loss, but they work slightly differently, and in some industries, people may be bonded and insured so that they are thoroughly covered. In both cases, the coverage involves making regular payments to a third party, known as a surety in the case of a bond and an insurance agency in the case of insurance. This third party is responsible for making a pay out in the event that a claim is made.

Bonds protect specific jobs, providing coverage if the job is not completed to satisfaction. If a bonded contractor abandons a job in the middle, for example, the contractor's client could make a claim to be compensated. Bonds also cover things like damage caused by a moving company, theft by a house sitter, and other problems related to the satisfactory completion of a job.

Insurance covers against specific types of losses. For example, if an insured electrician accidentally damages the electrical supply to a neighboring building, causing lost work time, his or her insurance would provide compensation. A bond would not cover this, because the incident would not be related to the completion of the electrician's job. Insurance covers liability issues that may arise in the course of someone's work, but unlike a bond, it will not necessarily cover a job which is not performed to satisfaction.

Being bonded and insured can be a big advantage for people in some industries. Housecleaning services, pet sitting companies, moving companies, and other people who work in and around the homes of their clients often have both to provide full financial coverage. Individuals who work on government contracts are often required to be bonded and insured to minimize the financial risk to the government.

Some insurance companies offer services that are very similar to bonding, which may make this type of coverage unnecessary. People should consult financial advisers and insurance agents to determine the best type of coverage for the work that they do. It is also important to pay premiums on time and to keep very clear records, including proof of bonding and insurance, as clients may ask to see this documentation before making a hiring decision. If claims are made against a bond or insurance contract, the premiums will generally go up, reflecting the increased risk to the surety or insurance agency. In the case of a bond, a claim may also be related to a breach of contract, in which case it is possible to lose one's business license after investigation by a regulatory agency.