Title: Surety Bonds and Building Insurance: Know the Difference

Surety bonds and building insurance are two different things. Building insurance is set up to assume that something bad will happen. When it does, the building insurance company will be compensated for their loss by the insurance company. On the other hand, surety bonds assume that nothing bad will happen.

Surety companies bond contractors. They are essentially “assuring” clients that that nothing will go wrong. If something bad does occur with the contractors – it is the surety company that will take the loss. Construction companies and contractors are under great legal obligation because of the contracts involved in their jobs. Huge losses can occur if something goes wrong. This is why many of them have building insurance and surety bonds. A contractor who is bonded will go the extra mile to ensure that they are living up to their obligations.

The three basic types of contract surety bonds are the bid bond, performance bond and the payment bond.

• The bid bond assure that the contractor bid in good faith and that the contractor will perform the work at the bid price.

• The performance bond covers the owner from loss which could occur if the contractor does not perform the work in accordance with the conditions and the terms of the contract.

• The payment bond assures that the contractor will pay what is promised to laborers, subcontractor, materials, etc. on the job they have been contracted to do.

In regards to building insurance, contractors should insure their equipment and estimate its replacement cost. You should review these replacement costs each year to make sure your equipment is covered. You may not want to insure equipment that is low in value. It may not be worth the high insurance premium to do so. You should talk with an agent to determine which items you should list, as well as the amount of liability insurance you should have that is cost effective for you.

Author: RedBox Tools, Inc.