Contract workers are required to attain a license or permit bond from a surety bonding company, such as ourselves. They are also required to obtain worker’s compensation and liability coverage for their crew. The difference between bonding and insurance can be a bit confusing and unclear. Read on to learn how to decipher between the two.

What is Workers Compensation and Liability Insurance?

Worker’s Compensation is a type of insurance policy that guarantees the injured employee to receive medical care, disability/rehabilitation, and have expenses related to the injury covered. Typically, while having worker’s compensation coverage, employees have their right to sue for negligence waived.

Some employees may opt-out of their employer’s worker’s compensation policy. Certain employees may have a pre-existing condition or injury not covered by worker’s compensation. In either of these cases, it’s important to maintain liability coverage, as the employee may file suit against the employer. Liability insurance protects employers from instances listed below.

Workers’ Compensation & Liability Insurance Covers:

  • workplace injuries
  • injuries occurring during work-related travel
  • injuries due to workplace violence
  • natural disasters
  • illnesses
  • fatalities

What is a Contractor License Bond?

Each state holds its own requirements for permitted construction work, but all require at least a permit bond and/or a license bond. Contractor license and permit bonds are a type of surety comparable to a line of credit and allow the contractor to perform work within that jurisdiction. The bond is an agreement between the contractor, the state licensing agency, and the surety company stating that the principal contractor will provide services in accordance with state and federal law (adhere to building codes, etc.)

If the contractor fails to fulfill the terms, a claim can be made against the bond, and the surety will investigate. If the surety concludes that the claim is legitimate, it will usually pay compensation to the claimant, up to the bond’s total value. The contractor remains liable for their obligations and must repay the surety, even though the surety company initially covered the claim. Therefore, these types of bonds are associated to a line of credit rather than insurance.

Summary of Contractor License Bonds, Workers Compensation, and Liability Insurance

  • A contractor license bond protects the contractor’s clients and the public. It’s a line of credit that, if used, requires the contractor to repay any compensation the surety had to extend out to the claimant(s).
  • Worker’s compensation is an insurance policy that covers employees in cases of work-related injuries.
  • Employer liability insurance protects/covers employers from lawsuits that may arise in cases of work-related injuries.

Understanding the requirements for permitted construction work can be complicated. At Construction Bonding, bonds are all we do. Call us today for professional, straightforward, and sound surety advice.


At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 or visit us at today.