Surety Bond vs. Insurance
What’s the Difference?
Surety bonds are an important risk mitigation tool, but it’s important to know that bonds and insurance are quite different. It’s an important distinction to make, though it can be confusing.
Surety bonds are actually a form of credit. They’re mistaken for insurance because they often involve payment when things don’t go as planned. But with surety bonds, risk is always with the principal (the person purchasing the bond), not an insurance company.
With insurance policies, risk is typically spread among a pool of similar clients. Policy holders contribute premiums, which help cover losses. Surety bonds are three-way agreements, where loss is not expected and premiums generally pay for pre-qualification services and the cost of underwriting. It’s similar to paying interest on a bank loan, where the interest is a fee for borrowing money and not a means of covering losses on loan defaults.
The surety bond provides protection for the obligee, or the project owner. But they are not immediately responsible financially for any costs or potential losses. In most cases, the principal, or entity whose obligations are guaranteed by a bond, will sign an indemnity agreement that stipulates he or she will repay the surety bond company if it pays out a claim.
If the principal can’t actually cover the payment, compensation falls to the surety company that issued the original bond. That’s a relatively rare occurrence as surety companies rely on strict underwriting guidelines to weed out unreliable businesses.
Most Popular Bonds in Florida
Certificate of Title Bond
Required for individuals who own a vehicle with a lost or stolen title in Florida
Public Adjuster Bond
If you work directly with clients to file insurance claims in Florida, you must be bonded.
Construction License Bond
Required if you have a credit score below 660 and wish to obtain a construction license in Florida
Motor Vehicle Dealer Bond
Required for individuals who sell 3 or more vehicles within 12 months
Seller of Travel Bond
Required for individuals who sell or promote travel-related services
Janitorial Service Bond
If you own a cleaning company, you can get bonded to protect your clients against theft.
Business Service Bond
If you employ individuals who work in clients' homes or businesses, you can get bonded to protect clients against theft
Alcoholic Beverages and Tobacco Bond
Required if you're involved in the sale, distribution or manufacturing of alcohol or tobacco in Florida
Other types of bonds are also available. Call us at (727) 546-5600 or e-mail us today to find out more.
