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What is the Difference between Insured and Bonded?

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About Difference between Insured and Bonded

There is a difference between being insured and being bonded. Most companies really want to be both as that provides a level of assurance to any potential client or business partner. Being bonded, especially a performance guaranteee bond, is typically used for a government contract pursuant to the Miller Act, or similar state or municipal statute (although more and more private companies are requiring a performance bond). The bond is typically based on a single underlying contract and has a defined period of time, such as completion of the contract plus a maintenance period (say, 1 year). Compare this to insurance. Insurance is a risk-shifting proposition that pools risk so that a single catestrophic event does not devastate a single member of the pool. Insurance is not based on an underlying contract, but instead an overall risk-sharing proposition. A bond, however, is not a risk-sharing proposition. Instead, it provides assurance against the risk of default of a single entity (such as a general contractor).

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