Foundations · Lesson 4 of 9
Bonds vs commercial insurance
Two things that get confused often. They protect different parties and pay out under different conditions.
About 2 minutes to read
Builds on
What you'll learn
- Who each product is designed to protect
- When you would carry both
- Why "I already have insurance" is not a bond substitute
Different parties get protected
Commercial insurance protects the business. The business pays a premium, and when a covered loss happens, the carrier pays the business (or someone the business is liable to). The business is the customer and the beneficiary of the policy.
A Surety bondA three-party guarantee. The state requires the bond, the business buys it from a surety, and the state can claim against it if the business harms the public. protects the public and the state. The business pays the surety, but if a covered harm happens, the surety pays the third party who was harmed and then comes after the business for reimbursement.
Most regulated businesses carry both
A typical multi-state operator carries a state bond per state where it's licensed, plus general liability, E&O insuranceErrors and omissions insurance. Protects a business when a professional service it delivered is alleged to have caused a client loss. insurance for professional services, and a cyber policy. The bond satisfies the state. The insurance protects the business.
Neither replaces the other. Telling a state "we have an insurance policy" does not usually satisfy a bond requirement.
How we'd handle it
The bond piece, sizing the right face amount per state, filing the surety paperwork, and tracking renewals so a lapsed bond never cancels a license, is the kind of thing that's hard to track yourself across many states. Cornerstone Licensing runs the surety side so the bonds stay current and your team stays focused on the business.
FAQ
Questions operators ask about this lesson
Is a fidelity bond a substitute for a surety bond?
No. A Fidelity bondDifferent animal than a surety bond. Protects a business against employee theft or fraud. Not usually a licensing requirement. protects the business against employee dishonesty. A Surety bondA three-party guarantee. The state requires the bond, the business buys it from a surety, and the state can claim against it if the business harms the public. protects the public against the business. They are different products with different obligees.