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What is Bonding Insurance?

Jim B.
Jim B.

Bonding insurance is a type of insurance purchased by companies to protect against any loss a customer might suffer as a result of work done by the company. Companies pay a premium to a specialized insurance company known as a bonding company to become bonded. Whenever a customer suffers some sort of loss due to the actions of a bonded company, the insurer steps in and pays off the customer for their losses. Companies with employees that handle large amounts of money or work after hours in homes or business are the most likely candidates for bonding insurance.

Certain companies may do work for customers that could leave them liable for huge payouts if their employees either willfully fail to perform their duties in an honest fashion or make mistakes due to incompetence. The risk that the customers might take such a company to court and sue for damages is often great enough to encourage companies to seek some protection from that risk. Bonding insurance provides just such a remedy, allowing insurance companies to step in when needed to pay any unexpected damages.

Man climbing a rope
Man climbing a rope

A company that buys bonding insurance generally has to pay lower premiums than it would for a typical insurance policy. That is because the process of bonding does not anticipate some sort of calamity that would cause payment to be necessary. The bonding company only steps in when necessary, which, if the bonded company is reliable, may be never. If necessary, the bonding company provides financial protection for its clients from any claims made by their customers.

There are several industries that put companies in the position of conducting business which may necessitate bonding insurance. Occasions that place employees in contact with clients' valuables are often bonded. For example, cleaning companies or exterminators, which require employees to enter into homes and business residences to do their jobs, should be bonded, since the employees of these companies would have access to personal possessions and business assets, raising the possibility for theft. Another example might be any company that is required to handle the money of another.

One other way that bonding insurance works is by protecting the company that purchases it from any theft committed by its employees from the company itself. It is not uncommon for employees to steal from an employer. This can take the form of a worker stealing from a cash register or someone using a computer to tap into the business accounts of his employer. No matter the case, a bonded company would be able to prevent financial disaster by possessing the insurance to protect against substantial loss.

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