First things first: What does being insured mean?

Small businesses typically purchase insurance policies to protect themselves against losses and lawsuits in case of unforeseen circumstances. In exchange for paying insurance premiums, businesses gain assurance that they won’t have to pay large sums out of pocket to cover damages or attorney fees and court costs.

A general liability policy is one of the most common forms of small business insurance. It protects against injuries to third parties or damage to someone else’s property.

Small businesses also typically carry professional liability insurance – also known as errors and omissions insurance (E&O) – to cover any lawsuits resulting from unsatisfactory work or professional negligence claims.

Other types of insurance policies that small businesses might need include:

• Workers’ compensation insurance offers assistance with income and medical bills in the event of bodily injury to an employee.
• Commercial property insurance helps cover the cost of repairing damaged property or replacing any stolen goods.
• Commercial auto insurance provides coverage to the policyholder and approved employees who drive company vehicles, as well as for personal errand use.
• Cyber liability insurance helps cover the cost of notification, credit monitoring, and other expenses if sensitive digital information is jeopardized.
• Commercial umbrella insurance provides additional insurance coverage for claims made on general liability, commercial auto, or employer’s liability insurance.

To see which policies your small business should consider, complete our online business insurance application. You can work with a licensed Insureon agent who specializes in your industry to determine your business’s exact needs.

What does it mean when a small business is bonded?

Surety bonds provide a guarantee that your company will fulfill its contractual obligations. A surety bond involves three parties:

• The principal: The business purchasing the bond
• The obligee: The client that has requested the bond
• The surety: The company that underwrites the bond

A surety bond reimburses the obligee when your company is unable to meet its obligations. Unlike insurance, your bonding company (surety company) will expect reimbursement when it pays for a claim.

For instance, a client hires a telecom cable installation business to wire a new branch office and requires a bond as part of the contract. Halfway through the job, the telecom installer’s project manager resigns, leaving the job unfinished.

The client could file a claim with the surety for the costs of hiring another contractor to finish the project. The original telecom cabler would be obligated to reimburse the surety.

Bond requirements differ in each state and are used in a variety of industries. Three common types of surety bond are:

Construction or contractor bonds

Also called license and permit bonds, this coverage indicates that a construction company or contractor has agreed to comply with the regulations of the government-issued building permit. This type of bond helps assure the client that the company can handle the job.

For example, a client hires a contractor to install plumbing in their new home. Later, a pipe bursts because the plumber’s work was not up to code. The homeowner files a claim against the bond to pay for the property damage, and the plumber must reimburse the surety for that amount.