You may have seen a business advertise that it is bonded and insured. These are two separate terms that offer different protections for the consumer and the business.

Let's take a brief look at each one.

Bonded vs. insured

A surety bond is an agreement between three parties:

  • The business.
  • The customer.
  • The surety company (known as a guarantor).

A surety bond protects a customer by guaranteeing that a business performs the obligations and tasks of the job. While the specifics of the guarantee depend on the type of surety bond, in a typical scenario, the business pays the surety company and takes out a bond. If the business fails to meet the obligations of a job, the surety company compensates the client.

For example, if a car dealer sells a stolen car, the customer could make a claim against the dealer's surety bond.

Being insured simply means a business has insurance such as business liability insurance or workers compensation. For example, insurance can cover a cleaning company that damages an expensive rug or a worker who gets injured at a construction job site.

How to get bonded and insured

You can generally buy surety bonds from insurance companies as well as companies that specialize in selling surety bonds. Your business might qualify for a surety bond through a U.S. Small Business Administration program.

Costs for a surety bond typically depend on several factors, including the business's credit score, the type of bond and the work history.

When purchasing insurance for a business, business liability insurance is a good start. This covers property damage and injury lawsuits. You can add other coverage types like business property insurance to cover your building and its contents. A common way to combine several coverage types into one policy is with a business owners policy (BOP).

The cost for business insurance depends on several factors, including the type and size of the business, the location and a history of insurance claims.

What does it mean to be licensed?

You may also have seen some businesses advertise that they are "licensed, bonded and insured." Depending on federal, state and local government, you might be required to have a business license or permit. There are different licenses and permits for different professions. For example, a professional license might indicate a level of expertise, such as a hair dresser who has a certain number of apprenticeship hours.

For more information on state-specific license requirements, visit the U.S. Small Business Administration website.