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The Difference Between Bonds And Commercial Liability

A bond is in fact different from commercial liability insurance primarily because of who is protected.  You should also note that a bond covers only for specific obligations, unlike liability insurance which is a broader form of coverage against a range of liabilities.

Insurance Protects You, Bonds Protect Your Client

Commercial liability insurance is purchased by you the business owner, and it protects you and your business, in the event of a claim.  The insurer will cover your costs based on determining the value of a claim and paying a claimant, or by providing legal representation to your company in the event of a lawsuit.

A bond is purchased by you the business owner, but it protects your contractor or client, in the event you fail to meet your obligations to the client. The surety or guarantor (the insurance company issuing the bond) agrees to pay the obligee (the party who is the recipient of an obligation) if the principal (the primary party who will perform the contractual obligation – that’s you) fails to meet your obligations under the contract with the obligee.

Understanding The Scopes of Coverage

Commercial liability insurance covers for a wide range of potential incidents, including bodily injury and property damage on your premises or on a job site.  For a full list of coverage types, check out our Insurance Coverage page or contact our team.

A bond covers contractual obligations only, and does not cover for any type of personal injury or property damage as a result of those obligations.

There are many different types of bonds, the most common being a surety bond.  This is the surety, or guarantee, that a contractual obligation will be fulfilled.  There are also payment and performance bonds, fidelity bonds, tax bonds, ERISA bonds and much more.  Each of these covers a specific type of contractual obligation that must be fulfilled. Here are some of the most common bonds:

  • Performance bonds: Provides protection for the client against poor quality work
  • Maintenance bonds: Provides a warranty, more or less, to protect the client over time
  • Payment bonds: Provides a guarantee that you’ll pay sub-contractors, laborers, etc
  • Bid bonds: Provides your business with the means to bid on contracts that require bond coverage
  • Supply bonds: Provides protection for the client that you’ll deliver any supplies as promised in the contract

Should I Buy Commercial Liability Insurance or a Bond?

It is generally recommended that you buy both, but this advice absolutely depends on what type of work you do.  Some contracts, such as city, municipal and government contracts, require bonds to ensure that work will be completed and in a timely fashion.  They usually also require commercial liability insurance with them listed as an additional insured to protect against property damage and bodily injury that may occur while you’re on the job for them.

Bonds Can Help Win New Contracts!?

If utilized correctly, a bond can help you win more business by giving potential customers peace of mind that the job they hire you for will be done correctly!


An Effective Strategy

As you can tell, bonds provide value to both you and your customer.  But with so many types of bonds and limits, it’s hard to generalize a one-size-fits all recommendation.  We specialize in educating our clients so they know what they need, how much they need, and the appropriate, effective strategy to positively impact their bottom line.  Contact us for more information or if you have questions!


  1. Three Things You Didn't Know About General Liability - […] best way to cover financial obligations is by purchasing a bond.  There are many to choose from, including bid…

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