Bonded vs. insured: What’s the difference?
People often lump the terms together, but being bonded and being insured are two different things.
- When you’re bonded, you’ve paid for a layer of protection that helps protect your customers if your work doesn’t meet state or contract standards. A bond guarantees a specific payout if certain professional goals aren’t met.
- When you’re insured, you have coverage that can help protect your business if something goes wrong — like an accident or if you damage someone’s property.
| Bonded | Insured |
| Who’s protected? | Helps protect the customer from financial losses | Helps protect the business from financial losses |
| Who requires it? | Required for certain jobs, licenses or permits | Required by states, landlords and some contracts |
| What’s covered? | Could help cover uncompleted, negligent or fraudulent work | Helps cover injuries, property damage or professional mistakes |
| Who benefits? | Could pay the customer if a business owner does not meet contractual obligations | Could pay the customer or the business owner if covered incidents, work accidents or business errors occur |
What does bonded mean for a small business?
Bonds help show clients you’re trustworthy and backed by a third party who believes you’ll follow through. Many cities, states and commercial clients require bonds before you can bid on jobs or start work.
Being bonded means your business has a financial guarantee — a bond — that can help protect your customers if you don’t meet your obligations. If work goes unfinished, you don’t meet a job’s terms, or there’s a valid claim of negligence or fraud, a bond can reimburse the customer up to the bond amount.
You might need a bond when you’re:
- Applying for a contractor or trade license
- Bidding on public projects
- Starting jobs that require performance guarantees
- Handling customer property or money
- Working in industries with consumer-protection requirements
Which types of jobs may require a bond?
You’re most likely to need a bond if your work involves permits, licensing or high-value projects. Common examples include:
- General contractors
- Electricians, plumbers and HVAC technicians
- Specialty trades (e.g., paint, concrete, flooring, masonry)
- Auto dealers or repair shops in certain states
- Janitorial or cleaning companies working on commercial sites
- Pet sitters, dog walkers and pet care providers (care, custody and control bonds or fidelity bonds)
- Home health aides and in-home care providers (fidelity or surety bonds since they work inside private homes)
- Bookkeepers and tax preparers
- Real estate property managers
- Notaries and mobile notaries (Some states require a notary bond as part of the licensing process).
- Businesses that handle customer money or property
- Companies bidding on government or municipal projects
For example, government-funded public works projects — from roads and schools to utilities — almost always require contractors to submit performance and payment bonds (per the Miller Act or equivalent state laws), plus proof of liability insurance and licensure.
High-risk trades often must be bonded and insured. Lower-risk service businesses may not need both, but carrying them can help you look more professional and win more work.
The 5 most common types of business bonds
There are many types of bonds on the market. Some of the more common ones for small business owners and self-employed workers include:
- Surety bonds: The most common bond — a three-party agreement that protects customers if you don’t fulfill your obligations. The Small Business Administration (SBA) offers surety bonds to help small businesses compete for jobs.
- License and permit bonds: These bonds are usually required by states and municipalities before issuing a business or trade license. ERGO NEXT offers contractor license bonds through a trusted partner along with small business insurance.
- Performance bonds: Also known as a contract bond, this bond serves as a guarantee that you’ll complete a project according to a contract.
- Janitorial or business service bonds: Protect clients if an employee is accused of theft while working on their property.
- Fidelity bonds: Can help protect your business from employee theft of money, inventory or other assets.
What does being insured mean for a small business?
Being insured means your business has financial protection if something goes wrong — like an accident, property damage or a business mistake that results in a loss for a client. Instead of paying out of pocket, business insurance could help cover the costs to cover some things like repair, damages, medical bills or replacement costs.
Insurance can help protect your business from the risks that come with everyday work. It can also help show clients, landlords and partners that you’re responsible and operating professionally.
You might need business insurance when you’re:
- Working on client property
- Hiring employees
- Signing contracts that require proof of insurance
- Driving for business
- Renting or owning a workspace
- Handling customer data, money or valuable items
The 7 most common types of business insurance
Here are the most common types of business insurance — some mandatory, some optional — that self-employed and small business owners use to help stay protected:
- General liability insurance: This can help cover you if a non-employee suffers bodily injuries at your place of work, or if you or your employees accidentally cause property damage during your work.
- Commercial property insurance: Whether you own or rent a storefront, office, warehouse or other business location, this policy could help protect the building, your business furniture, equipment, products inventory and some other supplies you rely on to run your business. It can also help with lost income if you need to close your business temporarily for repairs after a covered event.
- Business Owner’s Policy (BOP insurance): This is a bundled policy that combines the protections of both general liability and commercial property insurance into one package that’s often more cost-efficient than buying two separate policies.
- Workers’ compensation insurance: Mandatory in most states if you have employees, workers’ comp can help pay for employee medical expenses and lost wages after a work-related injury or illness.
- Professional liability insurance: Also called errors and omissions insurance (E&O), this type of insurance policy can help protect you if you make a professional mistake that costs a client money.
- Cyber liability insurance: If digital customer data is stolen, compromised or exposed in a cyberattack, this policy could help protect you from some of the associated costs.
- Commercial auto insurance: This can help protect your business from the unexpected cost of vehicle repair, replacement or rental if you or your employees are involved in a covered accident with a company vehicle like a car, truck or trailer.
How much does it cost to get bonded and insured?
The cost of being bonded and insured varies widely. Your profession, the type of bond you need, the types of business insurance you choose, your insurance coverage limits, deductibles and even your location can all affect what you’ll pay.
The cost of a bond for a small business owner
Surety bonds are usually priced as a percentage of the total bond amount. Rates often range from 1% to 15%, depending on your credit, financial history and the type of bond.
- A $100,000 surety bond could cost up to $15,000 a year at the higher end of the range.
- Licensing bonds can be lower, but your credit score may still affect your premium.
- Contract, fidelity and service bonds are also typically priced as a percentage — often 1% to 3% of the full bond amount. For example, a $50,000 bond may start around $500 annually.
The cost of business insurance
Insurance works differently. Instead of a percentage of a coverage amount, your premium, paid monthly or annually, is based on multiple factors that influence how much you’ll pay.
Some factors that could influence what you’ll pay for business insurance include:
- Your industry and risk level
- The types of policies you choose
- Coverage limits and deductibles
- The number of employees you have
- Your claims history
- Your business location
Learn more about how much business insurance costs.
Should business owners be both bonded and insured?
Whether you need to be bonded and insured depends on your line of work — but many businesses benefit from having both.
In some industries, it’s optional. In others, it’s required before you can get licensed, bid on projects or even start a job. For example, construction and skilled trades are the biggest examples of occupations that may be required to be both bonded and insured.
If you run a lower-risk business, you might not be legally required to be bonded and insured. But having both can still give clients extra peace of mind.
