Why does a contractor need to be bonded

If your profession requires a state license and you have qualified for the license, you may already be bonded. Some professional licenses require the applicant to purchase a surety bond and provide notarized proof of the bond purchase along with their license application. Call your insurance agent and ask for a surety bond if your client contract requires one. Surety bonds are a three-way relationship between a client, an independent contractor and the surety agency.

For instance, an independent electrician may be asked by the client to purchase a performance bond to assure the client that the work will be completed as stated in the contract. Surety bonds allow the client to recoup the cost of damages if the installation is faulty by contacting the surety and filing a claim. Contact the U.

Small Business Administration if you are unable to obtain a bond locally. In some cases, the cost of the bond may be too large for an independent contractor to afford or the contractor may present a risk the surety cannot cover. The SBA offers a Surety Bond Guarantee Program that aids small businesses in fulfilling bond obligations by guaranteeing 70 to 90 percent of the surety's risk.

Alex Burke holds a degree in environmental design and a Master of Arts in information management. When a claim is made against the bond, it is investigated by the surety. If the surety concludes the claim is legitimate, it will usually pay compensation to claimants, up to the full amount of the bond. In turn, the bonded contractor must then repay the surety for the compensation it has extended. The contractor remains liable for his obligations, even though the surety company initially covers the claim.

This is why bonds are equated to a line of credit, rather than insurance. What are workers' compensation and liability insurance policies? Unlike surety bonds, workers' compensation and liability insurance cover instances of: workplace injuries; injuries during work-related travel; injuries due to workplace violence; natural disasters; illnesses; and fatalities.

Workers' compensation insurance is a way of covering a contractor's employees. This insurance policy guarantees that employees will receive benefits such as medical care, disability income or rehabilitation, and will have expenses related to the injury covered.

Usually, when employees are covered by employer's workers' compensation insurance, they automatically forgo the right to sue their employers for negligence. Some employees may opt out of workers' compensation policies, or a particular employee or their particular injury or illness may not be covered by the insurance. In those instances, an employee may file a suit against the employer.

What is a Bonded Contractor? Fidelity Bonds: It is also possible that a bonded contractor has a fidelity bond, in place. Contract Bonds: Lastly, a contractor who wants to perform work on public construction projects and some private projects needs to be bonded. How Do I Get Bonded? Call Us Find Bond.