You’ve probably heard these two terms used together many times, and in fact, the two are used so often together, that many people are probably unclear about the difference between bonded and insured. Both provide forms of financial compensation in the event that a claim is made against one or the other. In the case of a surety bond, the claim would be made against a surety company, which is a financial organization issuing the bond, and in the case of an insurance policy, the claim is made against that policy, which was issued by an insurance company.

One of the major differences between these two is that bonds are intended to provide protection on specific jobs which a hiring company employs a contractor on, and the bond serves as a kind of guarantee that the contractor will live up to the terms agreed upon for workmanship, and compliance with any laws or regulations. As an example, if a bonded electrician abandoned the electrical work on a construction project halfway through the job, the project owner/manager would be entitled to make a claim against the bond for the cost of the unfinished work. Want to learn about contractor bonds, we can help.

If that same electrician was insured and he did complete the job, but during completion, he inadvertently caused damage to the property being worked on, that damage would not be covered by the bond, because it had nothing to do with him finishing the electrical work, according to the manager’s specifications. The accidental damage would, however, be covered by the electrician’s insurance policy, and any claim made would cover the cost of necessary repair work.

What Are Surety Bonds?

Bonds are contractual agreements between three parties: a principal, an obligee, and a surety company. The obligee is a company that has a job that needs to be done and seeks to hire a contractor (the principal) to provide professional services in order to accomplish the job. As a hedge against abandonment or incomplete work, the obligee requires the principal to purchase a bond for the project.

The surety bond lists the specific terms of the agreement, as well as a dollar amount which might be claimed in the event of poor workmanship or abandonment by the contractor. The bond itself is issued by a surety company, which is similar to an insurance company, in that it provides the actual bond (similar to an insurance policy) which covers this particular job.


Because any bonded contractor would be highly motivated to complete the job he was hired for, the bond works well to ensure that professional services are delivered as expected, and the hiring company receives full value from the contractor. If that were not true and the contractor left some part of the job unfinished, the hiring company could be compensated for any loss by making a claim against the surety bond.

The reason that the contractor would be so motivated to perform well is that when a claim is paid out by the surety company, it would then seek reimbursement from the contractor, who failed to live up to terms of the tri-party agreement. In addition to that severe financial penalty, the contractor would also suffer damage to his reputation, because a claim had been made against a job he was bonded for. When this happens, it can be more difficult for the contractor to obtain future work in the same area. Insurance is a thing that provides protection against a possible eventuality. Proper insurance will make a cover and protect your business in case the worse happens.

Why would someone want to get bonded?

Sometimes being bonded for a job is actually a condition of employment required by the obligee (the hiring company), and only bonded contractors would even be considered as candidates for the work. When a project manager for a hiring company feels that bonding is necessary as a means of protecting his organization, this is a common requirement that provides at least some level of assurance of job completion. Being bonded generally requires some kind of background check to ensure that a contractor or professional is trustworthy and has not previously defaulted on bonds. This being the case, being bonded also shows potential employers that you are worthy of trust and can be relied upon to perform in a professional manner.

How bonding and insurance help people

Bonding and insurance help contractors obtain work for which they are qualified because they both provide some level of assurance that if things go wrong, the employer will have means of being compensated for work that was either unfinished or below standard. If anyone were to be hurt on the job or if there was damage to the property during the execution of work, that would be covered by insurance.

Professionals purchasing bonds and insurance benefit because they can then be considered for jobs which require either or both, the hiring company benefits because it is protected from financial loss by having the means to make a claim against either the bond or the insurance, and the financial organization benefits because it sells the bonds and insurance to contractors. All three parties involved benefit when bonds and insurance are used to guarantee professional performance and compliance.


While there is a definite difference regarding bonded vs insured individuals, bonds and insurance policies are still sometimes made available by the same financial organization, because the two serve similar purposes and must be backed by a company with the resources to pay out any claims made against them. Professionals needing bonding or insurance should contact NFP, one of the leading financial organizations in the country, and one of the premier providers of both bonds vs insurance policies. We provide bonding solutions in all 50 states and can issue any type of bond, including the hundreds of commercial bonds issued for a wide range of business purposes. Contact us today!