Contractor License & Permit Bonds

While not insurance, Contractors License And Permit Bonds are provided by insurance agents. These bonds are required by various governmental entities (cities, counties, states) in order to guarantee that construction is performed to meet the applicable building codes and ordinances. If a building inspector finds that you are not in compliance, a “claim” may be filed against the insurance company that issues your bond. The bonding company will file a lawsuit against you to get reimbursed for the amount they had to pay. So you see, the bond really doesn’t protect you; it only protects the homeowner and the governmental entity.

Occasionally, a different type of bond will be required by a project owner (commercial job) or by a homeowner (especially on a large custom house) known as a Performance Bond. This type of bond guarantees that the job will be completed in accordance with the contract with the homeowner. If the job is not completed due to financial reasons (ex: your business becomes insolvent or you become sick or die), the bonding company will find another Contractor to complete the job and will look to you for reimbursement.