For those who don’t fully understand surety bonds in New York, this type of bonding may be confused with insurance. However, there are distinct differences between the two, as well as some specific reasons why you would choose one over the other. Here are some of the key differences between surety bonds and insurance that you need to know when looking for options to protect your business.
Insurance is a contract between two parties: the business owner and the insurance company. A surety bond contract, however, involves three parties: the business owner, the bonding company, and the obligee, or the person benefiting from the work.
Who It Protects
A surety bond protects the obligee’s investment in the event the business owner or contractor cannot meet the demands of the contract. On the other hand, insurance is purchased in order to protect a business owner’s property or equipment in the event of loss or damage.
How Claims Are Paid
When a claim is made against an insurance policy, you do not have to repay the amount of the claim. A surety bond is a type of credit so if an obligee makes a claim against your bonding, you will have to pay for the amount valued by the breach of contract.
Insurance and surety bonds in New York are something that every business owner should have and so it is important to know some of the main differences between the two so you can be a smarter and savvier shopper.