Contractor compliance basics
Contractor Bond vs. Insurance: What’s the Difference?
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A contractor bond and contractor insurance are not the same thing. In simple terms, a bond protects customers and certain claimants, while liability insurance protects the business against covered claims.
Bond vs. insurance at a glance
| Contractor bond | Liability insurance | |
|---|---|---|
| Who it protects | Customers and certain claimants | The contractor’s business |
| Typical role | Financial guarantee tied to registration or licensing | Coverage for covered third-party claims |
| Washington example | General contractor bond: $30,000 | 200000 public liability + 50000 property damage OR 250000 combined single limit |
How a bond works
A surety bond is a financial guarantee. If there is a valid claim against a contractor bond, the surety may pay the claimant and the contractor may have to reimburse the surety.
How liability insurance works
Liability insurance is a policy that can protect the business against covered claims, subject to the policy’s terms and limits.
Why contractors often need both
Licensing and registration systems often require both because they solve different problems. Washington contractor registration is a concrete example: it requires a contractor bond and liability insurance.
Related Washington guides
- Washington general contractor registration requirements
- Washington contractor bond requirements
- Washington contractor insurance requirements
Official Washington sources
- https://www.lni.wa.gov/licensing-permits/contractors/register-as-a-contractor/ L&I current · Insurance
FAQ
Is a contractor bond the same as insurance?
No. A bond protects customers and certain claimants; liability insurance protects the business against covered claims.
Do Washington contractors need both?
Yes. Washington contractor registration requires both a contractor bond and liability insurance.
Which one pays the customer?
A bond is designed to respond to valid claims by customers or claimants when a contractor fails to meet obligations.