Sometimes the difference between a contractors company and insurance bonding may get blurred. Bonds usually protect the investment and the interests of the consumer. Insurance usually protects you and ensures protection to your investment. A contractor license applicant may wonder why they need both different types of bonds and insurance.
What are Construction Company License Bonds?
Construction Company and insurance bonding is not the same thing but are rather two different things and are described as a line of credits and not insurance. When they receive a license in many states, from a surety bond company they are required to obtain their license bond. This thus compels them to follow the law and abide by it and failing to do so would result in legal actions. Again when you are collecting your license bonds, the state confirms you about the violations that are covered by the license bond. If you ever are unable to fulfill the commitment from your side, then your surety company would cover it up for you.
What is Bond Insurance?
Financial guarantee insurance promises to help you financially when you fail to pay the interest and principal on a bond on time. Bond issuers usually opt for bond insurance as it increases the credit thus decreasing the interest they have to pay. The riskier is an issue of the issuer, the lesser their credit scores are. Thus many issuers may go for credit enhancement to improve their debt and increase their net credit score. Usually, they insure only securities with low ratings in the investment grade. Bond insurance can be done for any kind of partnership be it private or public and also asset-based securities. Thus Contractors Company and insurance bonding are two different things based on their conditions and policies.
A very significant difference between contractor and bond insurance based on policies is that, once an employee or person is insured, and then they do not have to pay to the insurance company for the amount that the policy manages or handles. When you have a company, these kinds of policies help you to cover all kind of injury related to the workplace, under a payment bond you can compensate for all this without any worries. Contractor companies and bond insurance are dependent on each other when it comes to the insurer. To save both the insurer and the employee and any other kind of partner, it is important to have insurance policies or bond insurance from contractor license applicants.