Protecting what you own and what you purchase are two very important factors to one’s daily life. That protection comes with many assurances, and as I’m sure we all know, many payments. Some will tell you that such isn’t worth the cost of extra money, but most will tell you that it’s worth that and more. Protecting what you own, what you depend on, is crucial and a necessity to your everyday life.
Now that protection comes in different formats: agreements, leases, contracts, and the like. Each one is different from the other, yet all have legalities and bindings in them which help protect both parties from harm. But the two most common types, and the ones we’ll be discussing in today’s article, are insurance and bonds.
What is Insurance?
Insurance (see more here) is a means that protects against financial loss. In exchange for a fee, a party, usually the company offering the insurance, agrees to give compensation to another party, the one paying for the insurance, in the event of losses, damages, or injuries obtained by the latter. It is in the simplest, risk management with paperwork. But it is risk management that is effective and robust, intricate, and detailed.
What is a Bond?
A bond is another type of security in the form of paperwork. The way a bond works is that the issuer, or the debtor, owes money to the holder, or creditor, in the form of debt. Because of said debt, the debtor is obliged to pay back the creditor over time along with interest.
So now that we know the meaning of both terms and the basics of how they work, we can take it a step further and go into more detail about the types of insurance and bonds, namely two: general liability insurance and contractor bonds.
See more about bonds at the website listed here: https://investor.vanguard.com/
What is General Liability Insurance?
General liability insurance is a smaller type of business insurance, one that covers your business in the case of accidental injury or property damage caused to others. They can also cover other cases like copyright infringement, advertising injury, and reputational harm. Some examples of where general liability insurance are useful include a customer slipping on a recently mopped floor, or someone damaging merchandise belonging to a company. For businesses- small businesses especially- general liability insurance is crucial to protecting such from potential harm and financial devastation. General Liability Insurance covers incidents such as:
- Body injury
- Damage of property
- Copyright infringement
- Reputational harm
- Advertising injury
What are Contractor Bonds?
A contractor bond, also known as a construction bond, is a type of surety bond, one typically used in construction projects by an investor and the like. Contractor bonds protect against financial loss or disruptions that are caused by the contractor’s failure to complete the construction project or fail to meet the contract’s specifications. There are three main types of contract bonds, namely: bid, performance, and payment.
- Bid bond – used for the process of bidding. Each contractor contending for the project has to place a bid alongside the others, which helps ensure that the construction project is paid for in the event of someone backing out.
- Performance bond – protects the owner from financial loss if the contractor’s work is not up to standard i.e. defective, mediocre, subpar, or overall not in accordance with the conditions first laid out in the contract.
- Payment bond – also known as labor or material bond. It is a guarantee that the winning contractor has the financial ability to pay their workers, suppliers, and subcontractors.
What’s the Difference?
As you can see, there are quite some similarities between the two. However, they are different in some major key aspects. For example, contractor bonds are mainly used for construction purposes, whereas general liability insurance covers small businesses. Another key difference is that contract bonds have surety bonds, ones that protect in case of contract defaults, while general liability insurance holds insurance for liabilities and worker’s compensation. And also, general liability insurance doesn’t require a pay back to a claim, whereas a contractor bond does.
Which One is Better?
When it comes to bond vs insurance and which is best for you, it all really comes down to what kind of business you operate, and which format of security is the best for it. In the case of those under construction, contractor bonds are the way to go certainly, as they provide payment to all those under it despite negligence in contract failure or delays and such.
If it comes to owning a business, then general liability insurance is probably the way to go, as it helps protect the business from a variety of harmful factors. Whatever side you choose, and however difficult the choice may be, at least you have the knowledge to navigate the choice thoroughly.