A bonded company is a business that has purchased a surety bond — a financial guarantee that the company will fulfill its contractual or legal obligations. If the company fails to perform, the bond pays the harmed party. Being bonded is not the same as being insured; a bond protects your client, while insurance protects your business.
When someone asks whether a company is “bonded and insured,” they’re asking two separate questions about two separate protections. Here’s what each term actually means, which businesses need bonds, how much they cost, and how to get bonded if your industry or contracts require it.
Key Takeaways
- What “bonded” means: A surety bond backs the company’s promise to perform — if it defaults, the bond pays the client
- What “insured” means: Liability insurance pays for injuries or damages the company causes
- Bond vs. insurance: A bond protects the client; insurance protects the business
- Who needs bonds: Contractors, freight brokers, licensed tradespeople, notaries, and any business where regulators or contracts require them
- Cost: Typically 1–3% of the bond amount per year, based on credit and financials
What Does “Bonded and Insured” Mean?
“Bonded and insured” means a company carries both a surety bond and a liability insurance policy. The two serve different purposes and protect different parties.
| Term | What It Means | Who It Protects | What Happens After a Claim |
|---|---|---|---|
| Bonded | Has a surety bond guaranteeing performance | The client or project owner | Company must repay the surety (creates a debt) |
| Insured | Has liability and/or property insurance | The business and injured third parties | Insurer pays the claim (no debt to the business) |
| Licensed | Holds a government-issued professional license | The public (ensures minimum competence) | N/A — license is a credential, not a financial product |
A company can be licensed but not bonded, insured but not bonded, or all three. When a contract says “licensed, bonded, and insured,” it requires all three independently. Hiring a company that’s bonded and insured gives you two layers of financial recourse if something goes wrong.
What Is a Surety Bond?
A surety bond is a three-party financial agreement. The principal (your business) purchases the bond from the surety (the bonding company) to guarantee performance to the obligee (your client, a government agency, or a licensing board).
- Principal: The business buying the bond and making the guarantee
- Surety: The company underwriting the guarantee (often a division of an insurance carrier)
- Obligee: The party protected — your client, a government agency, or a regulatory body
- If the principal fails to perform, the surety pays the obligee up to the bond amount
- The principal is then legally obligated to reimburse the surety — a bond claim creates a debt, unlike an insurance claim
What Is a Bonding Company?
A bonding company is a surety that underwrites and issues surety bonds. Most bonding companies are divisions or subsidiaries of larger insurance carriers — companies like Travelers, CNA, Liberty Mutual, and Hartford all operate surety bonding units. Some specialize exclusively in surety bonds rather than general insurance.
- Bonding companies evaluate your credit, financial statements, and business history before issuing a bond
- The surety’s evaluation is similar to a credit check — they’re deciding how much risk they’re taking by backing your guarantee
- You can purchase bonds directly from a surety or through an insurance broker who places bonds on your behalf
- An independent broker can shop multiple sureties to find the best rate, especially if your credit or financials aren’t perfect
Which Businesses Need to Be Bonded?
Bond requirements come from two sources: government regulations and contract terms. Some businesses must be bonded to operate legally; others must be bonded to win specific jobs.
- Construction contractors: Bid bonds, performance bonds, and payment bonds are standard on public projects and large private jobs
- Freight brokers: FMCSA requires a $75,000 BMC-84 surety bond to operate
- Licensed tradespeople: Electricians, plumbers, HVAC contractors, and auto dealers in many states need license bonds
- Notaries public: Most states require a notary bond (typically $5,000–$25,000)
- Businesses handling client funds: Mortgage brokers, title companies, property managers, and fiduciaries may need fidelity or fiduciary bonds
- Janitorial and cleaning companies: Commercial clients often require a dishonesty or janitorial bond
- Court-appointed roles: Executors, guardians, and administrators may need a court bond
How to Get Bonded and Insured
Getting bonded is a separate process from getting insured, though many businesses handle both through the same broker. Here’s how each works.
How to get bonded (step by step)
- Determine what bond you need — your contract, license application, or regulatory body will specify the bond type and amount
- Contact a surety bond company or insurance broker — brokers can shop multiple sureties for the best rate
- Submit your application — you’ll provide your personal credit score, business financial statements, and work history
- Underwriting review — the surety evaluates your creditworthiness, financial strength, and industry experience
- Receive your bond — once approved, you pay the premium (1–3% of the bond amount) and receive the bond certificate
- File the bond — submit the bond certificate to whoever requires it (licensing board, project owner, court, or government agency)
How to get insured
- Contact an insurance broker or agent and describe your business operations
- The broker will quote general liability, workers’ compensation, commercial auto, and any specialty coverage your industry requires
- Unlike bonds, insurance doesn’t require a personal credit check — underwriting is based on your business operations, revenue, and claims history
- You can bundle bond and insurance purchases through the same broker for efficiency
How Much Does a Surety Bond Cost?
Surety bond premiums are calculated as a percentage of the bond amount, not the project value or your revenue. The percentage depends on your credit, financial strength, and risk profile.
| Credit Tier | Typical Rate | Cost for $50K Bond |
|---|---|---|
| Excellent (700+) | 1–2% | $500–$1,000/year |
| Good (650–699) | 2–3% | $1,000–$1,500/year |
| Fair (600–649) | 3–5% | $1,500–$2,500/year |
| Poor (below 600) | 5–15% | $2,500–$7,500/year (may require collateral) |
For contractors needing both surety bonds and liability coverage, see our guides to SBA hazard insurance requirements and vendor liability insurance.
Frequently Asked Questions
What does bonded mean for a business?
It means the business has purchased a surety bond that financially guarantees it will meet its obligations. If the business fails to perform — doesn’t complete a project, violates a regulation, or doesn’t fulfill a contract — the bond pays the affected party up to the bond amount.
Is a bond the same as insurance?
No. Insurance pays the policyholder for covered losses — the business doesn’t owe the insurer anything after a claim. A bond pays the client if the bonded business defaults, and then the business must reimburse the surety. A bond claim creates a debt; an insurance claim does not.
How do you get bonded and insured?
Contact an insurance broker who handles both surety bonds and commercial insurance. For the bond, you’ll submit a credit check and financial statements; the surety approves and issues the bond certificate. For insurance, the broker quotes liability, workers’ comp, and other coverage based on your operations. Many businesses handle both through the same broker.
How much does it cost to get bonded?
Most surety bonds cost 1–3% of the bond amount per year for applicants with good credit. A $50,000 contractor license bond typically costs $500–$1,500 annually. Companies with poor credit or thin financials pay 5–15% and may need to post collateral.
Can you get bonded with bad credit?
Yes, but at a higher rate. Some sureties specialize in applicants with credit below 600 and charge 5–15% of the bond amount instead of 1–3%. You may also need to post collateral equal to part or all of the bond amount. An experienced broker can place difficult-to-bond applicants with specialty sureties.
What is a bonding company?
A bonding company is a surety that underwrites and issues surety bonds. Most are divisions of larger insurance carriers like Travelers, CNA, or Hartford. You can buy bonds directly from a surety or through an insurance broker who shops multiple sureties for the best rate.
What happens if a bonded company doesn’t finish a job?
The client files a claim against the bond. The surety investigates, and if the claim is valid, pays the client up to the bond amount to cover the cost of completing the work or compensating the loss. The surety then pursues the bonded company for full reimbursement — the company is legally liable for the payout.
Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or insurance advice. Bond requirements vary by state, industry, and contract. Consult our licensed advisors for guidance specific to your business.
Need a Surety Bond?
Hotaling Insurance Services places contractor bonds, license bonds, and performance bonds for mid-market businesses across Texas, New York, and Florida. We also structure the liability coverage that goes alongside them.
Get a Bond Quote