CAN YOU TAKE INSURANCE TO COVER A BID BOND?
COUNT ON STOKES SURETY BONDS
It is crucial to not mistake a bid bond for a basic insurance policy. While both are forms of financial protection, they are very different. Unfortunately, way too many consumers match one for the other, resulting in a financial loss at the end of the day.
As a consumer, you will have to deal with insurance more often than bid bonds unless you are a business owner as well. Below, you will discover a comparison of insurance and a bid bond.
TOO LONG; DIDN’T READ (TL;DR)
Although insurance and surety bonds are similar concepts, they’re different as well. For instance, when purchasing insurance policies, the insurance company’s responsibility will be to protect you. However, with surety bonds, you as a contractor will be required to purchase surety bonds to provide a financial guarantee to the obligee (the project owner) if the contractor fails to uphold their end of the agreement. As such, surety bonds mainly protect obligees, but there might be cases where contractors can also be protected.
WHAT IS INSURANCE?
Insurance is a form of financial protection for consumers, hospitals, professionals, government entities, and companies. Insurance premiums are combined and utilized to cover various types of expenses. For example, health care insurance premiums cover in-patient and outpatient visits, medications, diagnostic tests, and cancer treatments, medical procedures.
Insurance was specifically designed to help consumers in various ways. It minimizes the consumer’s overall expenses, makes certain services accessible to consumers, and protects against the financial loss associated with third-party lawsuits and claims.
There are way too many types of insurance to mention them all. But, when you break them down, they basically offer the same type of protection with a few exceptions.
WHAT IS A BID BOND?
Bid bonds are utilized to protect businesses, government entities, hospitals, medical professionals, and contractors. The surety bond works by preventing or minimizing financial loss associated with a breach of contract by frivolous contractors.
To learn more about this in detail, please take a look at the following links:
HOW A BID BOND IS SIMILAR TO INSURANCE
Surety bonds are similar to insurance in many ways. However, there are a few differences between the two. When it comes to construction surety bonds, there will be three parties. There is the surety, obligee, and principal.
With insurance, you pay for insurance, and you’re protected by the insurance company. With surety, the principal is required to purchase the surety bond. While it offers some benefits to the principal, the bid bond and other surety bonds are primarily designed to protect the obligee or the owner.
These bonds protect the owner should the principal fail to fulfill their duties. If they don’t, the owner can file a claim against the bond and seek compensation. So, a bid bond is similar to insurance, but it doesn’t protect the party paying for it.
It is important to note that claims can be filed for different types of construction bonds as well, please take a look at a performance bond being called.
HOW BID BONDS PROTECT
Bid bonds and insurance protect someone or a company. It ensures that the obligee will be protected from defaults. If the construction contractor gets the project but doesn’t follow through, the owner can file a claim against the surety bond. This allows them to seek compensation. As a result, this increases the likelihood that the contractor will accept the contract, obtain performance bonds and payment bonds, and begin working quickly.
NEED A CONSTRUCTION SURETY BOND FOR A JOB? COUNT ON STOKES SURETY BONDS