Know the Difference between Contractor Bonding And Insurance

Most of the times state laws require contractors to get the license bond or the so-called contract specific bonds and at the same time also require liability insurance and compensation. But most of the people get confused between insurance and contractor bonding. This gives rise to a major question; why there is a need for both the types of bond licensing issues.

Insurance requirements and contractors bonding

In a licensing process of the contractors, a license bond and the two kinds of insurance are required for the verification process. Contractors Bonding and insurance company both have a certain type of coverage and compensation. These are applicable to various situations and different parties in different ways:

·         A contractor license is generally designed in such a way that so that they can protect a contractor’s client and the public but would also require the contractor to repay the claimant.

·         The compensation insurance policies of the workers cover all the compensation of the damages and injuries caused to the workers.

·         The employer liability covers all the compensation of the workers for the problems faced by them.

To understand the difference between contractors bonding and insurance company, first of all, the basic meaning of bonds and insurance is to be understood. Both these things are similar but have a lot of differences between them. It is said that for construction contractors both the bonds and insurance are required. Bonds are advantageous for the ones who work with the contractors while insurance is beneficial for the contractor itself.

Insurances are something which is maintained for an entire year while bonds are generally acquired over a period of time. Understanding the difference between contractors bonding and insurance company, one needs to know about the types of construction bonds. There are three main types of construction bonds which are called bid, payment and performance bonds. These things help to provide legitimacy to the contractors. The main types of bonds are described below:

·         Bid Bonds

These types of binds are quite different from other types of bonds. These are required in most of the fields. They help in to provide extra benefit and reassurance to the project owner. These bonds help to tell the bid amount of the contractor when required. It does not provide much help but still without the help of this binds placing bids becomes impossible.

·         Performance bonds

After the bid has been approved, the performance bonds come into use. This has, in fact, become a necessity and also protects the owner of the project. Such a situation arises because the owner is now bond to complete the project. The one, who fails to agree with all the conditions of the bond, faces problem in the near future.

Contractor insurance, on the other hand, has unlimited responsibilities. It has a lot to do with managing, organizing, time management, etc. It helps in the protection of the construction owner and thus is considered as a necessity. There are two types of protection involved in it; personal injury protection and structural damage protection. You can also customize your plans according to your needs and comfort.

Last but not least, these two types of things are similar to a certain extent but also at the same time have a lot of differences between them. The people who are engaged in the construction business should be well aware of all the types of bonds and insurances which would be immensely helpful in the completion of their project.