Insurance Issues |

Clients are often confused about surety bonds and insurance and how they differ. Very simply, the difference is that you must qualify for a bond, and you must purchase insurance. This is why the surety or bond company will ask so many financial questions and will require financial statements and verifications of funds shown on those statements. Bonding is very much like getting a loan from a bank.

An insurance policy is a way to transfer the risk to the insurance company. The insurance company considers the risk and recognizes that a certain percentage of claims will occur. The premium you pay for the policy is partially based on the occurrence of those claims or losses and they charge accordingly.

In bonding, there are 3 parties involved: the Principal, the Obligee and the Surety. The Principal or contractor doing the work retains the risk. The bonds provide protection for the Owner of the project, or the Obligee, that the contract will be completed. The premiums paid for bonds are actually “fees” to use the insurance companies financial assets to back your job. The bonds state that the contract will be completed and that the subs and materials used on the job will be paid. In the event they are not, the bond company may step in and take over the completion of the contract up to the amount of the bonds.

Not everyone will qualify for surety. Lately it is becoming more and more difficult because of the stricter requirements being placed by the sureties due to recent losses. Every claim on a surety bond has an impact on the industry since no losses are assumed in surety. Premiums paid are not based on the losses occurring in the industry, but rather, they are a “fee” to be charged for having the surety back you financially on your project.

When you are asking for a bond you should expect to supply the following and any other pertinent information that may apply to your specific situation: CPA Prepared Fiscal Year End Financial Statements on your Business, Personal Year End Financial Statements, Copy of a Bank Line of Credit, Current Work on Hand Report, Contractor’s Questionnaire giving information about your company, and a copy of the Contract to be bonded.

You, as owner of your company, will be required to personally sign an Indemnity Agreement to set up your bonding. This means that in the event of a claim, you personally will repay or make the bond company whole. This is very different than insurance where claims are not repaid.

We have professionals trained to handle all your bonding needs. If you have questions or would like to be set up for Contract Bonding we will be happy to assist you. Call us at (800) 921 1008 or (212) 566 1881.

You may pay less for insurance if you buy a house close to a fire hydrant or in a community that has a professional rather than a volunteer fire department. It may also be cheaper if your home’s electrical, heating and plumbing systems are less than 10 years old. If you live in the East, consider a brick home because it’s more wind resistant. If you live in an earthquake-prone area, look for a wooden frame house because it is more likely to withstand this type of disaster. Choosing wisely could cut your premiums by 5 to 15 percent.

Check the CLUE (Comprehensive Loss Underwriting Exchange) report of the home you are thinking of buying. These reports contain the insurance claim history of the property and can help you judge some of the problems the house may have.

Remember that flood insurance and earthquake damage are not covered by a standard homeowners policy. If you buy a house in a flood-prone area, you’ll have to pay for a flood insurance policy that costs an average of $400 a year. The Federal Emergency Management Agency provides useful information on flood insurance on its Web site at www.fema.gov/nfip. A separate earthquake policy is available from most insurance companies. The cost of the coverage will depend on the likelihood of earthquakes in your area.
In California the California Earthquake Authority (www.earthquakeauthority.com) provides this coverage.

If you have questions about insurance for any of your possessions, be sure to ask your agent or company representative when you’re shopping around for a policy. For example, if you run a business out of your home, be sure to discuss coverage for that business. Most homeowners policies cover business equipment in the home, but only up to $2,500 and they offer no business liability insurance. Although you want to lower your homeowners insurance cost, you also want to make certain you have all the coverage you need.>

Category Archives: Insurance Issues

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