What is a Surety Bond and How it Differs from Insurance?

Small business owners have several ways to protect their financial position from loss, some of which are better understood than others. Insurance coverage, often in the form of liability insurance, and surety bonds are two of the most common types of protection small businesses may implement. While these terms are often used interchangeably, there are distinct differences that make them stand apart from one another. This brief guide provides insight into how surety bonds work, how that differs from insurance coverage, and when either is needed to safeguard a business and its customers.

The Ins and Outs of Surety Bonds

Being bonded and insured is not the same thing. Surety bonds – the first part of that phrase – provide protection to the customers and clients of businesses owners, licensed contractors, and other professionals. Bonds are provided by surety agencies as a way to reduce financial losses or damages incurred by the bondholder's customer should the contract agreed upon not be completed. In some cases, surety bonds are required as part of the licensing process. However, regardless of the type of surety bond in place, each agreement works similarly for the surety agency, the bondholder, and the customer.

When a contractor or business acquires a surety bond, there are three parties involved in the transaction. First, the surety agency that provides the bond evaluates the business owner or contractor to determine if a bond can be put in place. If so, the individual requesting the bond receives a certificate of bonding after paying for the coverage. The third party is the job owner, or the customer, that requires a bond to be in play for a new project to begin. For instance, a construction contractor may have the job site owner as the third party, as that individual or company is at risk if the contractor does not perform as agreed.

When a claim is made against the bond because work is not done in-line with regulations or is not completed per the original agreement, the surety agency pays legitimate claims on behalf of the bondholder. In this sense, a surety bond is like insurance. However, the bondholder is then required to repay the claim amount back to the surety agency.   

Breaking Down Insurance Coverage

Insurance coverage for a business or an individual contractor differs from surety bonds in several ways. First, business insurance is offered by an insurance company or agency, not a surety agency, and it is not always a requirement for licensing as a professional. Insurance coverage works to protect the business owner or contractor from financial losses. These losses may be the result of damage to the business or inventory, employee theft or other theft, fire, flood, or liability issues that arise with a customer or worker. There are only two parties involved in insurance: the insured and the insurer.

When a claim is made against an insurance policy, the insurance company pays out a benefit up to the limits of the policy for damages incurred, directly to the business or the contractor. This helps protect the individual or entity from financial ruin for circumstances beyond their control. There is no obligation to repay insurance benefits received, which differs from surety bonds for contractors.

Other Notable Differences

In addition to the organizations that offer surety bonds and insurance, and the fundamental ways each type of instrument works, there are other subtle differences between surety bonds and insurance coverage. First, surety bond pricing is based on the financial history and claims track record of the business or contractor. Because surety bond claims are paid by the surety agency and then repaid by the bondholder, individuals with surety bonds are extended a form of credit when getting a new bond. For this reason, surety agencies look closely at the financials of the individual and the business, including credit history and score. The cost of a surety bond is calculated as a percentage of the total bond amount put in place.

Insurance, on the other hand, is priced based on other risk factors. For instance, if a business owner has faced liability issues in the past where an insurance claim was paid, the cost of new insurance coverage may be high. However, most insurance companies do not review credit history or score when determining if a new policy can be issued. They focus more on the risks of the business, based on the type of insurance policy the individual is trying to secure. The cost of insurance is a monthly or annual premium that is paid based on these factors, not a percentage of the insurance policy taken out.

Both surety bonds and insurance coverage are valuable protection strategies for businesses and contractors. However, there are differences bondholders and insured individuals should be aware of before selecting the type of coverage necessary. Understanding these differences is beneficial in protecting your business, your customers, or both.

Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.

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Tutorials & Tips Link Party 378

Happy New Year friends and welcome to the first Tutorials & Tips Link Party of 2019! If you're new here, a special welcome to you! The Tutorials & Tips Link Party is a place for bloggers in our niche to link up their best tutorials, tips, crafts, room reveals, furniture makeovers, recipes, etc. Each week, […]

Glowing Christmas Lights Night Tour

There's nothing more magical then twinkling Christmas lights and this marks the fourth year of sharing my glowing Christmas lights night tour that positively sparkles. Cozy up by my roaring fire and enter this magical winter wonderland. Don't miss the end of this post where I link to 20 other bloggers who are sharing their […]

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Why Should You Consider Finishing Your Basement?

The basement is often one of the most underutilised spaces and most homeowners simply use them as large laundry rooms. Instead of letting the basement collect moisture and lint, you should think about basement finishing.

Affordable Solution for Adding More Usable Space

Denver basement finishing provides a cost-effective way to add more space to your home. Compared to the cost of an addition, basement finishing is relatively affordable and requires less structural work. In many cases, these projects can be completed quickly and efficiently, providing minimal disruption to your normal routine.

Basement Finishing May Increase Your Property Value

Finishing your basement adds an extra room, helping to boost the overall value of your home. Whether you use the finished space for a bedroom, office, or living room, the new room may count as another bedroom for property valuations and assessments.

Along with increasing the property value, basement finishing often provides a greater return on investment compared to other renovation projects. In fact, for every $1000 that you put into the project, you may increase the value of your home by up to $700.

Accommodate Your Growing Family with an Extra Room

With basement finishing in Denver, you may not need to move when the size of your family grows. You can add an extra room in the basement, ensuring that you have the space you need.

If you want to add more space to your home, consider the advantages of basement finishing in Denver, CO. It is affordable, is efficient, and may boost the value of your property.

The basement does not need to be a dark, damp place. With a finished basement, you can gain an extra bedroom, bathroom, home gym, or storage space.

How to Stick to Your New Year's Cleaning Resolutions

2019 is here and the annual tradition of setting New Year's Resolutions and vowing to break bad habits has begun!

The new year is the perfect time to start afresh and set yourself a few personal goals. This year, why not try setting some resolutions for your home too? From monthly decluttering, to cleaning the fridge once a week, these can be a great way to improve your family's wellbeing and the general cleanliness of your home.

Once you have decided on your resolutions, the hard part is sticking to them! By late February, many of us begin to lose motivation.

Make this year different – we have gathered six tips that are sure to make your New Year's cleaning resolutions a success!

 

 

1. Keep it simple

It is easy to get carried away when making resolutions, especially when filled with the optimism and determination of the new year. In reality, establishing new cleaning habits will take time and willpower. So, the best approach is to settle for a few, simple resolutions. This will allow you to focus your efforts and will make sticking to your goals more achievable.  Check out our post on New Year's Resolutions to Improve Your House's Well-Being for some ideas!

 

2. Make a plan, not a wish

Once you have decided on your resolutions, the key is to make them specific. For instance, instead of declaring, 'this year I will keep the fridge organised', it is much more effective to decide, 'this year I will organise the fridge once a week'. Break your goals down into smaller steps and create a plan detailing which day each task will be completed and how often. By creating resolutions that are clear, measurable and scheduled, monitoring your progress will become much easier.

 

3. Share it with the family

Sharing your cleaning resolutions with everyone in the house will help to drive your motivation and deter you from giving up. Better yet, getting the children involved will be a great way of sharing the work load and making sure the housekeeping resolutions are kept throughout the year.

 

4. Write it down

Make your cleaning resolutions concrete by writing them down. Creating a checklist or a journal can be a great way of tracking your progress. Try placing notes around the house, such as on the noticeboard or fridge, as this will help to remind everyone what should be cleaned and when. A written checklist will keep your motivation alive and ensure your resolutions do not fade into the background after the initial enthusiasm of January!

 

5. Reward Yourself

When making your New Year's resolution plan, don't forget to include rewards! Rewarding yourself and your family with a treat, after each successful month of sticking to your cleaning goals, will give you all a sense of achievement and will help to maintain your motivation.

 

6. Don't give up!

Slip-ups are the most common reason why people give up on their New Year's resolutions. However, it is important to remember that slip-ups and set backs are inevitable. If you forget to clean the fridge or pass on your weekly declutter, don't view it as a failure or an excuse to give up altogether. Instead, treat every slip-up as a temporary set – back and resolve to get back on track!

 

Happy New Year and Good Luck!

 

 

 

Why You Should Start Adding Sinking Funds To Your Financial Plan

Why You Should Start Adding Sinking Funds To Your Financial Plan is a post originally published on: Everything Finance - Everything Finance - Its all about Money!

Your washer breaks down and you need a new one. Or in my case, the furnace is near the end of it's life and you need to replace it soon. A brand new furnace can run anywhere from $600 to $2,000.

How would you handle the extra but necessary expense? Instead of using a credit card or borrowing money from others, you can establish sinking funds to help cover the costs.

What Are Sinking Funds?

A sinking fund is a fund formed by periodically setting aside money for the gradual repayment of a debt or replacing of a wasting asset. In other words, you can have one of more sinking funds. Each one represents a savings bucket for a specific planned expense.

Many people confuse sinking funds with emergency funds or believe you only need to have one emergency savings account. Here are a few reasons why you should abandon that thinking and start adding sinking funds to your financial plan.

It's Not the Same as an Emergency Fund

Having a sinking fund is not the same as having an emergency fund. If you're using both accounts interchangeably, you're doing it wrong. An emergency fund can provide financial relief in the event of an unexpected event or emergency.

Let's say you have a medical emergency and can't return to work for a few days. Or, you lose your job with no notice. These are true emergencies and expenses you had no idea would occur.

You can't prepare for them specifically since you don't know they're happening. You can only start stashing away money to cover any unexpected expense when it pops up.

With sinking funds, you're saving up money for planned expenses. You know the expense is coming up but it can still take you by surprise and ruin your budget if you don't prepare accordingly.

Some people use sinking funds to save for Christmas, new furniture, a new car, birthdays, etc. When you don't set up sinking funds to cover these expenses, they can often seem like emergencies when they occur since you don't have the money on hand and need to come up with it quickly.

This is why it's best to have both an emergency fund and sinking funds so you can cover all your bases.

Become More Prepared For the Expected

We now know that sinking funds allow you to become more prepared for the expected. Let's go into more detail on how this helps you. You probably already have some type of budget or spending plan for your money.

Your first step with developing a sinking fund is acknowledging the planned expense. Then, you'll determine how much you need and when you'd like to have the money saved. Coming up with a clear plan helps you budget more efficiently. You can now develop a savings category for the sinking fund and budget for it monthly.

By being prepared for the expected, you'll avoid drawbacks like paying late fees or even losing benefits like insurance for example. Plus, it won't throw off your budget severely.

For example, both my husband and I have cars that need new registration stickers each year. They are $100 each and mine is due in April while his is due in May. Without it, we'd risk getting a ticket or paying a penalty for getting our stickers late.

We decided to develop a sinking fund for this expense because $200 of extra expenses could easily throw our budget off in the spring. We'd only have to set a small amount of money aside each month for the year, but this easy preparation would pay off when our registration is due.

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By being prepared for the expected, you'll avoid drawbacks like paying late fees or even losing benefits.
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Avoid Having to Borrow Money or Take Out Loans

Another reason why you should add sinking funds to your financial plan is to avoid debt. Using credit cards or loans to serve as an emergency fund or sinking fund is not acceptable and will only provide temporary relief.

When you think about it, using a credit card or taking out a loan to pay for an expense you can't afford means you don't have the money in the first place. How will you then manage to pay back the money plus interest? You can clearly see that borrowing money you can't really afford to repay just puts you deeper int he hole.

I can't even mention enough how great it feels to be able to pay for Christmas in cash as we've been able to do the past few years. The same goes with being able to pay for our wedding in cash along with birthday parties for our son.

Having the money you need on hand helps you avoid unwanted debt. In turn, you have the opportunity to get ahead faster.

You're Probably Already Using Sinking Funds

Let's face it. Sinking funds are nothing new. In fact, you're probably already using them in one capacity or another and just don't realize it. Have you ever saved up for a vacation? Many of us have and this is an example of using a sinking fund.

You see, you're already planning to set aside money for planned expenses even though they may be for fun or leisure activities. Maybe you have a concert for your favorite recording artist coming up and start to plan out your paychecks over the next few weeks.

Why not formalize this method of financial planning and establish a few core sinking funds to help you plan for other expenses? You can create sinking funds for any planned expense that you'd rather start saving for in advance.

I have sinking funds for

• Christmas
• Birthdays
• House maintenance
• Car maintenance and a new car
• Our car registration
• Travel

I'd recommend starting with 1-3 core sinking fund categories. That way, you don't spread yourself too thin. Consider opening an online savings account that will allow you to open several connected accounts for free. I like CapitalOne 360 because they have no fees and you can open up to 25 different savings accounts and nickname them for free.

Have you ever thought about using sinking funds? Which one of these benefits would best serve you?

 

 

Why You Should Start Adding Sinking Funds To Your Financial Plan is a post originally published on: Everything Finance - Everything Finance - Its all about Money!

Advantages of Owning a Franchise

Advantages of Owning a Franchise

On the previous feature, we have discussed the advantages of buying a franchise. In this article, we will further discuss why it is a better idea to own a franchise.

 

1. Organized training and support is provided by the franchiser. You can expect that whatever good practices there is in the brand, this will be carried out to your franchise as well.

2. Franchisees use various measures to ensure your success. It is in the franchiser's best interest to make sure you grow and sell.

3. Franchisers often have good track record, a sure prerequisite to become a successful franchise as well. You as an owner carry out the same reputation as well.

4. Franchisers provide you with location assistance, making sure that wherever you decide to put up your franchise will have the maximum possible profitability.

5. A good franchise can take advantage of the entire economic system, and negotiate the best prices for everything you need at significantly lower rate than you would as an independent business owner.

 

To know more about franchise opportunities at Life Maid Easy, click the link: http://www.lifemaideasyfranchise.com/

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