What It Means To Be Bonded, Licensed & Insured
| by Jim Wang |  Print Article
 Email Article
 Share on Facebook |
Whenever a company offers its services, it’s generally quick to note that it’s bonded, licensed, and insured (when it applies and if they are) but I was never certain what that actually meant. Until now, all I knew is that you should only hire someone if they’re bonded, licensed (if applicable) and insured. Often times someone who isn’t will be cheaper, but you will have to accept all of the responsibility if something bad happens and, as Murphy’s Law clearly states – if something bad can happen, it will. (Incidentally, that picture of the bail bonds company is only somewhat related to what it means to be bonded)
Bonded
Being bonded means that a bonding company has secured money that is available to the consumer in the event they file a claim against the company. The secured money is in the control of the state, a bond, and not under the control of the company. Let’s say that you hire a cleaning company and they end up stealing your Nintendo Wii. Well, you would file a claim against the company and, after an investigation, would be paid out by this bond.
This is slightly different but similar to what it means for an employee to be bonded. Being bonded in that case means that a bonding company has investigated your background and finds that you’re trustworthy and “good” enough to insure. In general, this is generally done when an employee has to handle large amounts of money or handle valuable property like jewelry or art. There is a very extensive and deep background check involved and what the employer gets is insurance that you won’t steal. If you do, then the bonding company pays out the amount of the theft. By being bonded, it shows that the employee is trustworthy enough for a bonding company to insure you up to a certain amount. Now, a company that is bonded means that a bonding company has funds
Licensed
For certain professions, a license is necessary to show that you’re competent and permitted to conduct business in the city, municipality, or state in which the license was issued. For example, home improvement contractors will have to be licensed to perform certain types of work and that license number will be printed on every advertisement they print. You can take that license number and look up their performance history in most states through the Better Business Bureau.
Insured
This is probably the most commonly understood of the three (second to being licensed) and this refers to what happens if someone gets hurt on the job. Let’s say a company is fixing your roof and a roofer falls off and hurts him or herself. If the company isn’t insured, then the claim gets filed against your homeowner’s insurance (bad). If the company is insured, then the claim gets filed against the roofing company’s insurance.
In summary, it’s important that anyone you work with is licensed, bonded, and insured. There’s no reason why you should have to work with someone who isn’t all three, unless being licensed doesn’t apply. Once you know that they are, research and confirm that they are being truthful. I can say that I’m bonded, but unless I provide the documentation and you can verify it, I’m not actually bonded.
(Photo by agilitynut)
{ 12 comments, please add your thoughts now! }
Stumble It!
Bookmark
Send to Twitter
Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.
Just a few points to clarify the bonding issue. The three types of bonds are Bail Bonds, Surety Bonds and Fidelity Bonds. Surety bonds are financial guarantees that the licensee will fulfil their legal and licensing obligations, which does not necessarily mean performing the work you want done in the way you want it done. Fidelity bonds are as described above: they guarantee the honesty of an employee.
You should be aware that it’s not as easy to collect on a surety or fidelity bond as one might think. Simply having a valid claim is not sufficient. In most cases you’ll have to sue and win an award in court. Then you will stand in line with the other creditors/claimants to collect In all likelihood the contractor is already in financial trouble and has other creditors making claims against that $5,000 or $10,000 surety bond. You’ll be lucky to get some payment before the bond is exhausted.
I agreee that even though your contractor is licensed, bonded and insured, it’s not a substitute for doing your due dilligence research.
Sounds like an honest person with bad credit won’t be bondable.
What aboutcare taking
Some western states have a state agency which licenses home contractors (basically, any business which works on or in your home, including contractors, pest control, and painters) and the license serves as a clearinghouse to include bonding and insurance. So anyone can look up whether a business has an active license and at the same time know they are bonded and insured.
Jim, are you positive that, in the event of a worker falling of your roof, only the roofing company’s insurance is on the hook? I don’t have any experience in this and I’m not a lawyer, but it seems to me the worker would also have a claim against the home owner.
Hi KMC,
The employee cannot file a suit against a homeowner for falling off of their roof. However, if there was information vital to the health of the crew, the homeowner did not ay anything to the contracted help, and all the crew suffered serious injury or death, then yes! But for slipping off doing the normal routine…no. That is where the employer insurance kicks in. Plus workman’s comp.
Also, you have to check the state guidelines. They all have different guidlines:)
i have a question if i want to do services and it is just me how can i get bonded and who do i talk to. I would like to have more information for future references. I do understand company’s bond their employees but when it comes to someone who is self employed and have no employees how do a person get bonded for security purposes.
I was hired for three days then the bank told me I was not going to be able to continue employment due to them not being able to issue a bond for me. I had a misdemeanor 12 years ago. Are there any companies out there I can work for? Banks. Do the same rules apply to NCUA?
What is the cost of being licensced, bonded and insured?
As an owner in a 189 unit condominium, I was asked to help our social committee by collecting the fees for our social functions (i.e. October fest, Christmas Party, etc.). Usually, we have about 65 people attending these during these social get-together and ask for $5.00 each to help defray the expenses. We provide all the food and dessert coffee and tea but not any alcohol. The treasurer of the Board of Directors, who attends all the condominium socials, raised the question: Was I bonded? I am not sure whether he was just joking. But it seems at each function he makes a similar remark. Immediately after each functions, I submit a detail financial report to the Social Committee chairperson. I would think that the Social Committee Chair would be more responsible to submit my report on to another authority if required? As a unit owner and member of the social committee, I never heard of such a requirement? Do I have to be bonded? Look forawrd to your response! Marge 12/7/2008 10:16 am
@Marge: I doubt there’s a requirement to be bonded. He was likely asking just in case something happened to the money. Since he mentioned it more than once, he probably wasn’t joking but this seems ridiculous. As the owner of a unit in the condo complex, it seems absurd that you’d run away with $300 for any reason.
I am wanting to start a Non-Medical Companion Care Company in the area in which I live. At first it will just be myself and maybe 2 girl friends of mine that I know are honest people and are cmpletly trusworthy. I am not able to get any loan to use for start up cash. The types of services that will be offered are light housekeeping, shopping or taking the elderly to the store to pick up items they may need. Laundry services, thingds of this nature. I was wondering do I need to be bonded? How would I go about getting myself bonded and what would the cost be? Surety Bonds and Fidelity Bonds. Which would pertain to my situation. Do I need special insurance coverage on my van to provide rides to my clients, say if I take them to a Dr’s appointment or to get their hair done? Thanks in advance for the information.