Surety Bond vs Insurance: Which One is Better?

Surety Bond vs Insurance

As a service provider, having a financial failsafe is proactive risk management. If you find yourself in a position where you need to file a claim or compensate for damage to customer property, having the right policies in place can save large and small businesses alike thousands of dollars.

Among the most popular options are insurance policies and surety bonds. While the policies themselves both offer financial security, they are very different in how they work and who they protect. As such, some business owners elect to purchase one, the other, or both.

Wondering which is right for your company. See our breakdown below.

Who Does the Policy Protect?

Surety bonds and Insurance Policies are designed to cover different individuals in the process of rendering a service. Furthermore, while surety bonds are single format and are backed by a bond company, there are several different types of insurance (such as business insurance, general liability insurance, workers compensation, and more).

To get a better understanding about which individuals are protected by which policy, let’s look at an example with a moving company. While moving a client’s belongings, a mover drops a particularly heavy piece, damaging it badly.

In this case,

Insurance will protect the company from the injuries suffered by the worker while a Surety will cover losses suffered by the client from having their furniture damaged.

In short:

  • An insurance policy protects the policyholder from financial loss
  • A surety protects the person receiving services (obligee) from financial loss

How Premiums Differ

Another way in which insurance and surety bonds differ is in the way their premiums are paid.

With insurance, losses are expected. This is why everyone contributes an ongoing monthly premium.  Depending on your history, line of work, and other factors that determine your risk bracket, the rate of your monthly premium is adjusted over time. When damage arises, you can file a claim and receive a variable amount of coverage.

Sureties are designed to cover potential losses. As loss is not necessarily expected, surety premiums are only paid one per renewal period. Depending on the policy, this renewal period lasts anywhere from 1 to 3 years. If loss occurs, this allows the client to interact directly with the surety company to redeem compensation.

Percentage of Compensation

As mentioned briefly above, when you file a claim with an insurance company, there is no guarantee that your damages are fully covered. This is because insurance claims often go through insurance agency adjusters, attorneys, and several rounds of negotiation before a final coverage price is reached.

Sureties are bonds. As such, they are fully funded from the beginning and can be used to make disbursements if damage occurs. However, unlike insurance where the business files the claim, it is up to the obligee to file against the surety. This goes back to the original principal discussed: insurance protects the business, sureties protect the clients.

Arizona Insurance Experts

Surety bonds and insurance can either be used together or separately depending on your business needs. To make sure you have the best information on the best route for you, be sure to talk to a professional from Gebhardt.

At the Gebhardt Insurance Group, we offer a variety of coverage from a host of major insurance carriers with an experienced staff that can help you determine the coverage you need.

Give us a call at 520-836-3244 and make an appointment to get more information on state requirements, insurance providers, and bond premiums— all from an Arizona insurance expert.

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Steve Gebhardt

Gebhardt Insurance Group was honored by AAA Insurance for being the top New Policy Agency in Arizona for 2013 and achieving the "Emerald Achievement Award."
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