What Does it Mean to Be Bonded and Insured in Canada?

To be bonded and insured means to have both a surety bond and an insurance policy for your business. Bonding and insurance can protect businesses and boost their credibility. It’s essential for small business owners to understand what bonding and insurance are, the differences between them, and their importance to businesses.

For starters, bonding refers to surety bonding. Surety bonds protect clients from losses resulting from a business’s failure to fulfill its contractual obligations. If a claim is made on a surety bond, the surety company reimburses the obligee for their financial loss. Being bonded means that a business has purchased a surety bond. Bonds require the principal to repay the surety company the amount paid for a claim.
As for insurance, it protects the business itself from financial losses, such as legal fees and property damage. If your business is sued for any accidental damage, the insurance will cover the legal fees and other costs associated with repairing the damage. Insurance claims are paid directly to the policyholder’s business, rather than a third party.

While different, both bonding and insurance are crucial for a business’s risk management strategy. This blog guides you through bonding and insurance.

What are the Types of Surety Bonds?

Before shopping for a surety bond, it’s crucial to understand the different types. There are two main types of surety bonds: contract bonds and commercial bonds.

Contract Bonds (Contractor Bonds)

Contract bonds or contractor bonds are also called construction surety bonds and provide financial protection in various industries.

Commercial Bonds

Commercial bonds are required for businesses to work on projects with a government or municipal institution. They protect public institutions from suffering losses if a business is unable to follow laws, rules, and regulations.

To understand how surety bonds work, there are a few terms to know:

The principal is the person or entity who purchased the bond, meaning the company or contractor providing a service.
The Surety is the insurance or surety company that issues the bond and makes sure that the obligee’s part is fulfilled.
The Obligee is a business that hired the principal to fulfill a job.
Performance bonds ensure that the business will carry out its services in full according to the agreement.
Payment bond is a type of contract bond that guarantees that the subcontractors, laborers, and suppliers will be paid for their work on a construction project.
A license bond or permit bond is a type of bond that government agencies require businesses to have to get a business license. The U.S. Small Business Administration helps businesses acquire licenses and permits.
Fidelity bonds protect businesses from employee theft, fraud, or unlawful digital data access.
Bid bonds are popular in the supply bidding process. They guarantee that the bidder will take on a job if selected for it.

What Are Insurance Coverages for Businesses?

Insurance is important for businesses of all scales, protecting them against unexpected events. Here are the most common business insurance coverages.

Commercial general liability insurance protects against third-party claims of injury or property damage. The insurance company covers legal costs, medical bills, and repair fees. Many clients expect the business they partner with to carry general liability insurance.
Professional liability insurance covers liability claims arising from unsatisfactory work or negligence claims. It covers legal costs, including settlement if applicable.
Product liability insurance protects businesses if a claim is filed against them alleging that a product caused harm.
Cyber liability insurance helps businesses with costs associated with data breaches or cyberattacks.
Commercial property insurance covers repairs to property damaged due to insured perils, like fire or theft.
Business interruption insurance covers expenses while a business is temporarily shut down.
Crime insurance reimburses businesses if they fall victim to theft or fraud.
Commercial auto insurance is required for vehicles used for business purposes and covers fleet insurance for multiple vehicles.

What Does It Mean to Be Bonded in Business in Canada?

What is a Bonded Company

In business, the meaning of a company being bonded or bondable is that your company has a surety bond acquired from a surety bonding company or insurance company. It assures the client or obligee that if you cannot fulfill your obligations for any reason, they will get financial compensation.

That means that the bond issuer or surety provider will pay in case of the bonded business’s inability to fulfill the contract.

Is It Better for My Company to Be Bonded or Insured, or Both?

Before answering that question, let’s get into the difference between the two.

Bonded VS. Insured: The Key Differences

Bonding and insurance have similarities as they both protect your business. Insurance shields companies from losses resulting from unexpected events or client claims. As for bonds, they protect clients and customers from loss due to a hired company’s inability to fulfil their contractual obligations.

When it comes to which is better for your company, in most cases, it’s best to be both bonded and insured. They serve different purposes and are very important for businesses that deal with clients and customers.

How to Get Bonded and Insured

How to Get Bonded in Ontario

Getting bonded is an easy process in Ontario. First, you collect all the required licenses and permits. Then, you find an insurance company or bonding company that is willing to you insure your business. Afterwards, you fill out the application and pay all the required fees. Lastly, you acquire the bond and present it to your clients upon request.

How to Get Insured

The first step to getting insured in Ontario is to contact a broker or insurance agent to help you choose an insurance company. Once you settle on an insurance carrier, you agree on insurance premium and deductible amount, as well as coverage options and limits. Then, you fill the application and pay all fees. Insurance coverage starts shortly after you submit the application.

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The Benefits of Being Insured and Bonded

The Benefits of Business Insurance

Business insurance protects you from common risks, like property damage, bodily injury, cyber threats, electrical hazards, and more. It ensures that you don’t have to pay out of pocket if they happen.
Whether it’s required by your clients or by laws, having business insurance ensures you’re compliant and well-protected.
Having insurance gives your business credibility and earns your clients’ trust. It shows you’re serious about mitigating risks and communicates that their projects will get finalized no matter what happens.
It protects your employees against many risks, like business interruption, injury, and more. Having the right insurance helps you attract skilled workers.
In case of lawsuits, business insurance shields your company from expensive legal costs, and it also builds up a good reputation for your business.

Benefits of Getting Bonded

Surety bonds enhance your business’s credibility and trustworthiness. They assure clients that your business will fulfill its contractual obligations.
Surety bonds are required by law in some industries and required by some contracts. Having them ensures that your business complies with the law and satisfies the clients’ wishes.
Your bonds protect your customers in case you’re unable to finalize the project. Most customers and clients prefer working with companies that are bonded.
Having a bond enables your business to qualify for and win more jobs, particularly in construction, janitorial services, transportation, and consulting. It also allows you to bid on government or large private sector contracts.

How Much Does It Cost to Become Bonded and Insured?

Bonding Costs

The cost of getting a surety bond for your business is more or less fixed. It involves paying an annual premium. The premium comprises a specific percentage of your total bond amount. Paying the premium is key to maintaining the bond.

The standard rate of a bond is 1%-3% of the total bond amount. For example, if the bond amount is $10000, the bond premium will be $100-300 per year.

The rate increases for high-risk industries, like the construction industry, or businesses with a poor credit score, to 4%-15%.

Factors That Affect Bond Cost:

Personal and business credit score: A poor credit score increases the rate.
Type of bond, like license bond, permit bond, contract bonds, etc
Industry and project type: High-risk industries get a higher rate.
Years in business and financial strength: The more experienced the business is, the lower the rate gets.

Insurance Costs

The cost of insurance depends on the type and amount of coverage needed, among other factors. Getting a business owner’s policy, which is a foundational business insurance bundle, costs between $500-$3000 in annual insurance premiums. A general liability insurance policy on its costs $400-$1500.

Factors that Affect Insurance Cost

Type and size of business: A larger-sized business costs more in insurance premiums.
Industry risks: High-risk industries pay more than low-risk ones.
Revenue and payroll: A high revenue also increases the insurance costs.
Coverage limits and deductibles: More coverage limits increase premium rates, and so does a low deductible.
Claims history: If you have previous claims, you will get higher rates.

Bond VS. Insurance FAQs

Why would a person need to be bonded?

A person may need to be bonded to guarantee their honesty or performance in a job, especially in roles involving finances, property, or public trust.

Are bonds covered by insurance?

No. Bonds are not insurance; they’re financial guarantees. They protect the party hiring you, not you as the bondholder, unlike insurance, which protects policyholders.

How much do insurance bonds cost?

Costs vary based on the bond type and the applicant’s credit. Most range from 1–15% of the total bond amount annually.

What’s the difference between being insured and being bonded?

Insurance protects you, while bonds protect your clients or employer if you fail to meet your obligations.

Who typically requires bonding?

Contractors, cleaning services, auto dealers, notaries, and professionals handling large amounts of money or valuable assets often need bonds.

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