Difference Between Construction Bonds And Contractors Insurance

As a construction contractor, who operates within Canada, you should understand that you’d have innumerable responsibilities to juggle. Not only will you need to put in a substantial amount of work attempting to satisfy the client, but also you’ll need to protect yourself and your business. This is where construction bonds and contractors insurance come into the picture. Although the two are somewhat similar, they’re also immensely different. Within this guide, you will learn about both and the differentials, which set them apart.


Bonds Versus Insurance

Before moving any further, you should take the time to familiarize yourself with the basics of both. Again, they’re similar, but also very much different. In the majority of cases, construction contractors will be required to acquire both. However, they’re also significantly different. This is the case, because bonds tend to be more beneficial to those working with the contractor, while the insurance is more advantageous to the contractor itself. Also, insurance is something that is normally maintained throughout the year. Bonds are generally only required, when the contractor attempts to and accepts a contract.


Examining Construction Bonds

In order to truly understand the differences between both, you should take the time to learn about the different types of construction bonds. Although there is an abundance of these, there are three, which are used frequently. The top three include bid, performance and payment bonds. Each bond protects the project owner from something unique, while helping to add legitimacy to the contractor. Below, you will find a breakdown of each bond type.

Bid Bonds

Bid bonds are significantly different from any type of contractors insurance. These bonds are nearly always required, before attempting to place a bid on an open project and provide the project owner with added reassurance. The bond tells the owner that the contractor will agree to the bid amount and will also obtain the performance and payment bonds, if they’re required. Although it does very little in terms of helping the contractor, they would not be able to place their bid, without this bond.

Performance Bonds

After your bid amount has been accepted, you’ll need to obtain a performance bond. This is almost always a requirement and protects the project’s owner. This is the case, because obtaining a performance bond will legally bond you to finish the project in a satisfactory manner and within a specific period of time. If you fail to live up to this agreement, you will face problems and may lose the bond amount. Also, if the contractor bails out at any point in time, the performance bond will help to ensure that the project owner’s losses are covered or a new contractor is found to take on and finish the project.


Examining Contractor Insurance

General contractors have unlimited responsibilities, when it comes to the organizing, managing, and ensuring a time efficient completion on all development projects. Not only are they always going to be at risk of equipment failure, but they risk huge financial loss, if the project owner, subcontractors, or venders fail to meet their obligations. A construction bond protects the contractor to some degree, but not nearly enough, which is why contractor insurance is a necessity.

  • Personal Injury Protection – is included in a contractor’s liability policy. This not only protects the general contractor, but also will protect the employees, vendors, subcontractors, and all other personnel that get injured on the job site. This also protects employees when they are working in an offsite location, especially truck drivers.
  • Structural Damage Protection – is a necessity if you own a contracting business, since you are responsible for the protecting the client and nearby business structures. For instance, if one of your employees accidentally tosses a hammer and breaks out the client’s picture window, you will be forced to cover the costs of the damages. This is where the contractors insurance will come into play and all you need to do is file a claim with your service provider.

You will always have the option of customizing your plan to suit your needs. For instances, you can select other types of coverage to enhance the policy, including equipment theft and breakdown, along with comprehensive general liability.



All in all, these two things are very similar, but they’re also different in many different ways. As a construction contractor in Canada, you should not only familiarize yourself with both, but you should also obtain the appropriate bonds and insurance, as necessary. With the information provided above and in the frequently asked questions page, you should now have enough knowledge to do just that! If you need additional help or are confused with where to start, speak to bonding expert at ConstructionBond today!


Other frequently asked questions regarding surety bonds