Customers are always trying to make sure they can trust the construction company they pick for their project. One of the best ways of establishing trust is through a surety bond that ensures a contractor lives up to the agreement and comply with government regulations. Surety bonds are required by most governments. Is a surety bond insurance? Is it another term for construction insurance? No. In this post, we’ll discuss the purpose and type of coverage that each offer.
Insurance for Construction Companies
Insurance is designed to protect your construction business from lawsuits or losses that would put your business in financial trouble. Common policies include:
- General Liability Insurance - Covers third-party property damage and bodily injuries.
- Commercial Property Insurance - Covers business property such as tools, equipment, and company buildings.
- Inland Marine Insurance - Covers your tools while in transit or at a job site. It will also cover mobile equipment, such as forklifts and bulldozers.
- Workers’ Compensation Insurance - Covers the injuries to an employee arising out of the course and scope of their employment.
- Builder’s Risk Insurance - Covers damages to a building in progress or being built resulting from events such as fire or windstorms. It also covers construction materials that are stolen from the job site.
Working with a qualified independent insurance agency will help you analyze your business’s risk to determine the appropriate coverages and policy limits for your construction company. This will not make sure your business is legally compliant, it will give you peace of mind that your company is protected from financial ruin in the event of an accident.
Surety Bonds for Construction Companies
Surety bonds are required by law in industries such as construction to ensure all rules and regulations are abided by. They also help safeguard consumers against dishonest behavior and poor performance.
For example, in home construction, a surety bond would reimburse the homeowner in the even your business quit the job midway through building their home. That’s why costumers search for construction businesses with surety bonds. It signals to them you can be trusted and are safe to do business with.
How Does a Surety Bond Work?
While insurance is an agreement between the insurance provider and your business, a surety bond is an agreement between your business, a government authority or client, and the surety bond provider. The surety bond provider is who underwrites the bond and ensures your company will meet the contractual conditions of the government authority or client.
Purchasing a bond typically requires 1% to 5% of the full value of the bond. However if you have bad credit, bond premiums could run you as high as 20% of the bond value.
One of the main differences in how bonds work compared to insurance is the bond functions as a line of credit. Meaning you are expected to pay any claims filed by an impacted party not the bond provider. When a claim is made, the surety bond provider will conduct an investigation. If the claim is valid, the surety provider will cover the costs of the claim paying the customer what they are owed. The surety provider will then go after your business to pay back the claim costs.
Surety Bond Requirements in Louisiana
The Louisiana Department of Insurance (LDI) requires that bonds meet specific standards to be accepted. This includes:
- The bond must be issued by an insurer admitted to write surety business in Louisiana
- Each bond must be executed on the form provided by the LDI
- The original bond must be filed with the LDI
- Each bond must provide for a cancellation notice of not less than thirty day
- A continuation certificate for the bond shall be provided to the LDI annual no less than ten days prior to the expiration
Surety bonds and insurance are an important part of operations for any construction business. When you work with an independent insurance agent, like Lewis Mohr Insurance Agency, you can easily determine the right amount of coverage for your unique needs. Contact us today for a detailed business analysis and insurance quote!
