Being a contractor at a construction site can be a risky business. As a contractor, your work often involves performing tasks that can potentially be dangerous. Although the physical injury is not your only worry, you also run the risk of financial losses if you do not have insurance, a bond, or both, in place.
However, there is often confusion about this matter. What is the difference between these two, and why are they even necessary? Understanding the difference between these types of insurance policies can potentially protect you as a contractor, as well as the company you are working for.
We will be discussing the importance of bonds and insurance, and what you should have in place if you are working as a contractor.
Defining Contractor License Bonds
It is often required that contractors have a license bond or a contract-specific bond in addition to liability insurance or commercial insurance. Contractor license bonds are needed to become a licensed contractor. The costs and requirements will vary accordingly to where the construction will be taking place.
Different Contractor License Bond Types
Depending on the type of work taking place as well as the state where the construction is taking place, different types of contractor license bonds may be required:
- Plumbing contractor license bonds,
- General contractor license bonds,
- Electrical contractor license bonds,
- Local contractor license bonds and,
- State contractor license bonds.
Parties Involved in Contractor License Bonds
Contractor license bonds involve three parties and are legally binding contractors. The parties involved are as follows:
- The principal – this is the construction professional buying the contractor license bond,
- The obligee – this is the entity requiring the contractor to be bonded and,
- The surety – this is the company issuing the bond and guaranteeing the contractor’s obligation.
A claim can be made on the contractor bond if the contractor does not fulfill the bond’s terms. This way, they will still gain compensation for any damages incurred.
But, a surety is not simply going to absorb this loss. The contractor is responsible for reimbursing the surety for the money that they paid in order to settle a claim that was made against the bond.
Protection Offered by a Contractor Bond
People often misunderstand that a contractor’s license bond protects the contractor from being held liable for damages. While bonds are usually issued by insurance companies, contractor bonds differ from traditional insurance policies. In fact, contractor bonds protect the general public by guaranteeing that construction professionals or contractors adhere to all of the conditions that are found in the bond.
Contractor license bonds protect consumers and government agencies from financial loss by ensuring that contractors and construction workers work according to specified regulations.
Get Your Contractor Bond Insurance With Paradiso Insurance
For more valuable information about contractor bond insurance or commercial insurance, read more on their website.
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