Can someone explain to me what insurance bonding is? For example, when a contractor applies for a local license, they need to show proof of being bonded and insured. I understand what general liability insurance covers, but how does bonding fit into the picture?
Insurance is liability so if the contractor through his negligence caused your house to burn down his liability insurance takes care of that. Bonding come into play if one of his employees comes in and steals your Rolex watch. The bond will pay those damages. Bonding usually requires you to screen your employees. There is also a performance bond. This is taken out so that if you start working on a project and for whatever reason don’t finish it, the bond pays to have it finished.