You may wonder at the start of a project, what is bonding versus insurance and do I need it? Bonding is like insurance, but a different type. General liability insurance and workman’s’ compensation is what most general contractors carry. However, only certain contractors carry bonding. To have or require bonding on a project is typically more expensive, about 1-3% more. To put it simply, it gives a guarantee that a clients’ project will be completed, regardless if the contractor goes out of business. Bonding is usually required on most public projects over $50,000. Contractors with bonding, carry different bonding capacities $100,000-10+ million. A bonded contractor is also required to meet certain financial requirements to be able to get any type of bonding.
General Liability insurance or builders risk policies only cover physical damages, if they occur. So if a contractor skips out on a project or goes out of business, it leaves the owner “holding the bag” to finish the project. There are also various types of bonding such as bid bonds, payment and performance bonds. All giving some degree of an “insurance” for a projects completion.