Date Published: August 13, 2010

There is a common, albeit understandable, misconception that because surety bonds are insurance products and are commonly placed and sold by insurance agents that they are similar to insurance policies.  This couldn’t be farther from the truth, and we’re here to set the record straight.  The most distinct difference between the two is that one is designed to protect you and your assets, whereas the other is much more closely related to a line of credit.

All fifty States have to set and regulate their surety requirements for their numerous industries: Motor Vehicle Dealers, Contractors, Mortgage Brokers, Finance Lenders, Check Cashers, Insurance Agents , etc. all have to have bonds to maintain their professional licenses.  This is not to protect the professionals from harm.  The professionals get their protection from an insurance policy.  This is to protect the public from fiscal damages that can be sustained when a business defaults on its obligation to its client base.  When a loss is sustained, usually due to fraudulent or negligent activity, a claim can be placed on the bond.

If the Surety Company pays out on the claim, they seek repayment from the professional whom they bonded.  This is the real difference between surety bonds and insurance.  If you hold a bond, you are financially responsible to the Surety for any claims against that bond.  Almost like a professional cosigner.  The Surety is not there to protect, but to assure the State and its residents that funds are there to resolve issues that may arise.

If you currently carry a surety bond, or are obtaining one, know that it is not going to protect your company or your assets.  To protect yourself from loss, you would be best served obtaining an insurance policy.  Don’t let this common misconception leave your company or assets unprotected.

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