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Small business owners that want insurance for mistakes, accidents or work stoppage problems that can occur during the course of operations have a variety of types of coverage to consider. Surety bonds ensure that a project will be finished and are widely used in the construction industry. Liability insurance covers damage, injuries and other problems that small businesses can face while providing service. In many cases, a small business may need to be both bonded and carry liability insurance. While both come with costs, the protections they provide to customers lets businesses that have these insurance policies charge higher rates.
A surety bond is issued by a company called a surety, which acts to make sure that a contract is correctly completed or services are adequately provided. Common in construction and similar fields, a surety’s role is to act as a third-party and step in if a contract isn’t completed or doesn’t meet quality. For example, if a contractor abandoned a project because a higher-paying one became available, a surety would hire a new contractor to finish the work.
Construction contracts of a certain size often require surety bonds. According to the Small Business Administration, any federal construction contract valued at more than $150,000 must be bonded. State, municipal and commercial construction contracts commonly have similar requirements. For federal contracts, the SBA has rules and programs to help ensure that small business owners can find a surety company to bond the project. The SBA identifies four types of surety bonds for construction contracts. A bid bond guarantees that the contract can meet the requirements and complete the project. A payment bond ensures that subcontractors are paid. A performance bond guarantees the project’s requirements are met; an ancillary bond can cover non-performance issues in the contract.
Companies can be bonded under “license and permit” bonds, which are common for businesses that provide services that require compliance with certain certifications or license requirements from local or state authorities. Examples of businesses that need license and permit bonds include auto dealers, real estate brokers, travel agencies, health clubs, landscaping, collection agencies and auctioneers.
Businesses that have employees who handle money, valuable items or intellectual property can take out employee theft bonds. Employee theft bonds are also commonly purchased by businesses that perform accounting and research and development services or that perform services such as plumbing and electrical work in off-site locations.
Small businesses can buy coverage for many problems that can occur during the course of business operations due to accident or negligence. General liability insurance can include property damage, personal injury, medical expenses, libel or slander, expenses for legal defense and any potential damages that are awarded as a result of a lawsuit. General liability insurance does not cover claims made by third parties, such as customers whose service was affected as a result of the problem. Additional types of insurance that small business owners may need to consider include professional liability, such as medical malpractice insurance, and product liability insurance, which protects small businesses that manufacture products from liability due to injuries or damages that occur from defects.