Some businesses are required by state law to have a bond, and it's often confused with business insurance. Failing to understand the difference between a bond and business insurance is a key mistake that many entrepreneurs make that can leave them financially vulnerable and without protection. Though the terms may seem similar, general liability insurance is much different than a business bond.
The Purpose of Bonds
The fundamental difference between bonds and business insurance is that bonds are required by the state for some businesses to protect the interests of the public, while insurance is optional for most types of business ventures. Examples of businesses that often need a surety bond include construction and engineering firms, notaries, car dealers, cleaning companies, collection agencies, and home health care companies.
With a bond in place, customers have a better chance of recourse than if no bond was on record with the state. When a business operates without a bond, but is legally required to have one, its owner can typically end up paying hefty fines once caught and possibly have to shut down operations.
It's not uncommon for a company to go ahead and get bonded, even if not required by the state. Purchasing a bond voluntarily is a strategy used by businesses to encourage trust on the part of consumers and provide reassurance, which is why many moving companies are bonded as well as insured.
The Importance of Business Insurance
Bonding protects the public and consumers, but business insurance is what should protect your assets -- bonds are never a substitute for business insurance. For instance, if you have a bond with the state and your store is sued by a customer, you won't recover any losses due to being bonded. However, with general liability insurance, you can handle the legal case and pay judgments without your business spiraling into financial chaos.
Many business owners think that bonds can replace the need for insurance, but that isn't so. To actually protect your company's assets, you absolutely need general liability insurance at the very least. Combined with your state's required bond, you'll be in a better position to ensure your business's stability for years to come.
Bonds and business insurance are two different forms of protection for business owners. You can’t replace business insurance by purchasing a bond. To ensure your business has the best protection, you should speak to a licensed insurance agent to determine whether you need a bond to complement your business insurance.
We’ll help you get started. Call Eagle Insurance Agency at 956-620-2028 for more information on Texas business insurance.