Insurance Coverages Often Associated with Surety Bonds

Surety bonds aren’t insurance policies—they’re financial guarantees. A surety bond ensures that a contractor or business (the principal) fulfills obligations made to a project owner or client (the obligee). Although a surety bond itself doesn’t provide traditional insurance coverage, certain types of insurance may be required alongside it.

Commercial General Liability Insurance

Commercial general liability insurance protects businesses from claims of bodily injury, property damage, or personal injury. Many obligees require the principal to carry this coverage as a condition for obtaining a surety bond. It offers added financial protection beyond the bond itself.

Professional Liability Insurance

Professional liability insurance, also known as errors and omissions (E&O) insurance, covers professionals against negligence or service-related mistakes. This coverage is often required when a professional seeks a surety bond, especially in fields like architecture, engineering, law, and consulting.

Property Insurance

Property insurance covers damage or loss to physical property used by the principal. While it doesn’t directly tie into the surety bond, obliges may require this coverage to make sure the principal has protection for their operational assets during a project.

Workers’ Compensation Insurance

Workers’ compensation insurance pays for medical costs, lost wages, and rehab expenses if an employee gets injured on the job. Many states mandate this coverage. While it’s separate from the surety bond, principals often must show proof of workers’ comp to meet bonding requirements.

Q: Are surety bonds the same as insurance?
A: No. Surety bonds guarantee a commitment between parties, while insurance covers losses. Bonds protect the obligee, not the principal.

Q: Do I need insurance to get a surety bond?
A: Often yes. Many obligees require liability, E&O, or workers’ comp coverage before approving or issuing the bond.