Do You Know the Difference Between Bonded and Insured?

November 29, 2024 / 5 mins read

As a Toronto business owner, do you know what bonded and insured means?

If your small business is insured, is it also bonded? The answer is no. If your business is bonded, is it insured against unexpected events like lawsuits, fire, and vandalism. The answer, again, is no. These are two separate protections for your Toronto business.

Are you in Toronto, Greater Toronto Area, or elsewhere in Ontario? Western Financial Group is a national insurance broker that has partnered with Canada’s leading insurers to meet your business insurance needs.

Our business insurance experts do the insurance shopping for you to get you a competitive commercial insurance quote that suits your needs and your budget as a Toronto small business owner.

What is the difference between bonded and insured?

What does bonded mean?

If your Toronto business is bonded that means you purchased a surety bond.

Surety bonds involve a three-party agreement between the principal (your business), the obligee (the party that requires the bond such as a government, company, institution), and the surety company (such as an insurance brokerage).

Surety bonds are required in certain industries or for specific projects to ensure completion, compliance, or payment.

A surety bond will pay your customer if your Toronto business does not complete a job or obligated task. If work is not completed per agreement, a client can claim the bond and receive compensation for their loss up to the bond’s limit. Once claimed, the paid-out losses are still recoverable from your business.

What is the advantage of being bonded?

It gives clients confidence in your business and serves as a financial guarantee. When your Toronto business is bonded it shows that you are committed to fulfilling your contractual obligations. A surety bond also assures a client that working with your Toronto business involves less risk than an unbonded business.

What Toronto business/industries are often bonded?

Contractors, construction companies
Cleaning/janitorial companies
Security services
Transportation services
Food services
Manufacturers (Building materials, steel and metal products)
Suppliers (Utility equipment)
Retailers (Specialized software, audio-visual equipment)
Wholesalers (Office furniture)

Types of surety bonds

Commercial bonds

A commercial bond is required if your business wants to work on projects with a government or municipal institution. They are designed to protect public institutions from losses due to a bonded business’ inability or refusal to complete the work or follow laws and regulations.

Contract bonds

A contract bond, also called a construction surety bond, is commonly used in the construction industry. This type of bond protects the party that requires the bond from financial loss in the event that the contractor (principal) fails to fulfil the terms and conditions of their contract.

Fidelity bonds

A fidelity bond protects your business and clients in the case of employee wrongdoing, such as theft or fraud. A Toronto business could consider purchasing a fidelity bond if it has employees who regularly handle cash or other expensive assets.

How much does it cost to be bonded?

The cost of a surety bond is a percentage of the total amount of your bond, which can average between 1% to 15% of the bond cost.

What does insured mean?

Insurance is a two-party agreement (between your business and insurance provider) that provides financial protection against specific risks, such as fire, vandalism, theft, severe weather, and third-party bodily injury.

Your insurance policy will state the policy deductibles that you chose, as well as the policy limit. All responsibilities and obligations between the insurer and the insured (your Toronto business) will be outlined in your insurance policy.

Insurance gives your Toronto business financial protection against lawsuits and covered events that are named in your insurance policy. For example, commercial general liability coverage helps protect you financially should a customer be injured, or their property damaged, at your place of business and then sues you.

Once you purchase a bond, you can add “bonded and insured” to your website or advertising to show prospective clients, giving your Toronto business an advantage over your competition.

Now that you know more about being bonded and insured, have you thought about what other insurance coverages your Toronto business needs?

Insurance recommended for Toronto small businesses

Commercial vehicle insurance is also needed: When you or your employees are on the road for work, commercial vehicle insurance may cover your vehicles in the case of an accident. Your personal vehicle insurance will not cover you in the case of an accident if the work is related to your Toronto small business.

Here’s an insurance checklist for Toronto businesses:

Do you have the best business insurance rate that suits your work?
Do you have the right amount for your deductible and regularly review it to make sure it’s the right amount for you?
Are you or your employees using personal vehicles for work?

What do I do if there’s a claim against my Toronto business?

Contact your broker immediately after any business-related mishap. Waiting to file a claim can confuse insurers about the severity of the damages to your business.
Know your policy so that when you contact your broker you are familiar with what will be covered or not.
Document the damage. Take photos right away and write down what happened.
Do not throw away damaged goods after taking photos. Keep the physical evidence so that your adjustor can see it.
Do not invite lawsuits. Don’t say anything that could be used against you, especially if you aren’t sure what happened.
Be honest about what your damaged property is worth. Damaged commercial property is generally valued according to its actual cash value or replacement value.

Western Financial Group has licensed BUSINESS INSURANCE EXPERTS to get you the right commercial insurance at the right value for your Toronto business. Our experts are available now to help you navigate the business insurance journey.

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