What does bonded mean?

Bonded insurance term

If you run a small business as a contractor or offer something service-related, there are several ways to protect your business from risk, liability, and financial loss. And, in all likelihood, clients are more attracted to companies that take the proper precautions by carrying the right coverage.

Today, the best businesses shield their clients, employees, third parties, and themselves in three primary ways: licensing, insurance, and the purchase of bonds.

Below, we’ll discuss how these three interact as well as what it means to be bonded. Keep reading to discover more.

Licensed and bonded and insured (oh my)

You’ve likely heard the phrase that a business is “licensed, bonded, and insured,” but what does that mean? Because the terms tend to go hand in hand, it’s easy to confuse one for the other. And, it’s worth noting that being bonded and being insured aren’t the same thing, despite the fact that they both act as defensive measures.

Before we dive into the details, it’s important to define and distinguish these three categories:


A business license is a legal document that gives you the right to run and operate a business in your city. The state you live and work in may have different rules and regulations for your business. Certain states require that you apply and pay for a state-certified license, which (according to the state) demonstrates that you have the necessary skills, training, and knowledge to perform your job.

Often, the licensing process can be quite an onerous burden. Many businesses complain that it stifles competition in the market by preventing—or at least making it incredibly difficult—for new businesses to join.

With this in mind, it’s important that you check with your state and confirm that you have all the required licensing in order to legally operate your business. Failure to do so could result in steep fines or force your entire business to shutter.

Examples of professions that may require licensing include:

  • Hairdressers
  • Estheticians
  • Attorneys
  • Accountants
  • Contractors
  • Real estate agents


Of the three—licensed, bonded, and insured—insurance is likely the term you’re most familiar with. But for the sake of review: insurance protects a business from financial losses incurred at or during work. There are a host of insurance policies that any small business should consider having:

By paying a relatively small figure upfront, these types of plans can protect a business from the various liabilities and risks involved with your industry. In particular, general liability and professional liability insurance can help cover:


Like we’ve already covered, bonds and liability insurance are different. Bonds are purchased as a safety measure that can help a business guarantee its work and is meant to address a variety of potential claims that a client could level at them, including:

  • Incomplete work
  • Unsatisfactory work
  • Failure to comply with laws and regulations
  • Accusations of theft and/or fraud
  • Employee misconduct

It’s important to note that insurance covers the business while bonding protects the business’ customers. Should something go wrong during the course of work, the customer is able to file a claim against the business, and the purchased bond can then provide for the cost of a valid claim.

Being bonded demonstrates to customers that the business has taken reasonable actions to ensure that the work will be completed as agreed upon. Otherwise, customers will receive compensation via the bond if the business fails to meet those expectations.

Types of bonds

In the business world, there are two primary bonds that you should be aware of. They are surety bonds and fidelity bonds.

Surety bonds

Sometimes referred to as a performance bond—this guarantees to the customer that the agreed-upon services will be provided. A surety bond typically lends protection from claims surrounding incomplete or unsatisfactory work, noncompliance with laws and regulations, or illegal actions such as theft or fraud.

It always involves three parties:

  • The Principal – The company or individual that purchases the bond and will be responsible for providing the expected services.
  • The Obligee – The party that needs the bond in order for the business to do its job. Typically, this is a state or local municipality, although there are instances when it could be another company.
  • The Surety – The insurance company that issues the bond.

Fidelity bonds

Fidelity bonds are meant to protect policyholders and clients from fraudulent acts, particularly those committed by employees such as theft, misconduct, and fraud.

It’s often considered a supplement to business insurance and can be split into two categories:

  • First-Party Fidelity Bonds – Pays for damages caused by an employee stealing or defrauding the company they work for. It covers the business but not its clients.
  • Third-Party Fidelity Bonds – Similarly, this covers the same damages discussed previously, but on behalf of the client.

One area where these are incredibly common is within the IT sector since IT members often have unrestricted access to the business’ proprietary information and customer data.

How to become bonded

If your state or local municipality requires it, or you regularly work in a client’s home or on another business’ premises, it would be wise to become bonded and thus protect your business and your customers.

But how do you become bonded? Don’t worry, the process is straightforward.

First, you’ll have to decide on the type of bond. Costs vary depending upon your profession and the type of bond you seek.

Once that is done, you’ll need to speak to your insurance agent and double-check that the provider has a full-fledged bond department. This way, you know that they fully understand the surety market and are able to accurately assess your liability.

From there, you and your agent will work together to select and then purchase the right bond for your business.

Get licensed, bonded and insured

Do you need liability insurance for your business? If so, you’re in luck. Thimble is a new, better type of insurance that’s on-demand. When you need insurance, you pay for it; when you don’t, you save.

With Thimble, you can purchase a liability policy that goes by the hour, day, week, or month—it works when you do. Your affordable plan can be tailored to your specific needs, timeline, and desired coverage limits.

In a rush and need proof of insurance?

Just visit the Thimble app, enter your details, receive a free quote, and then select your plan. In under 60 seconds, you can have your Certificate of Insurance ready to go.

Don’t leave your small business exposed. Instead, get covered with the help of Thimble.

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.

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