What Is the Difference Between a Surety Bond and Insurance?
Construction companies may be required to carry insurance and qualify for a surety bond when working on certain high-value projects. When a company gets a surety bond in New Jersey, the insurer takes on the risk that the applicable aspects of the project will be completed successfully per contractual specifications. Both surety bonds and insurance transfer risk to the insurance company, but they do so in different ways.
To qualify for a bond, the insurance company takes on the risk that a specific company will meet contractual obligations. The risk is not spread among large groups of insured with similar risk profiles.
Project Specific Coverage
Insurance often covers a time period and is renewable at the end of the term. A bond usually applies only during the span of a specific project. Contractors may be covered by multiple bonds that apply to different projects during the same time period. The bond for one project does not normally cover deficiencies on a different venture.
While the contractor typically receives the payout when insurance coverage applies to an issue, the asset owner or lender is generally the beneficiary when a surety bond in New Jersey is paid. Because of the differences between the two insurance products, contractor activities can be covered by both insurance and surety bonds.