Top Secret Risk Management Tool For Small Businesses - Bradshaw & Weil, Inc. Skip to main content

Top Secret Risk Management Tool For Small Businesses

Risk Management Tool

There are many methods of risk management. The insurance industry defines risk management as assessing and quantifying the likelihood and financial impact of a loss then determining how to avoid or lessen the risk. Insurance is surprisingly only one method of risk management.

You may associate bonds with business insurance; however, they are separate from a business insurance policy. They are sold by insurance agencies as a way to help lessen risk. There are many types of bonds available for your business. It is confusing to research alone. We have compiled a list of types of bonds with brief explanations of each.

Surety Bonds

Surety bonds are legally binding contracts that protect against broken promises. The three parties involved in the contract are the principal, the obligee and the surety. Let’s look at an example. ABC Flooring is doing a job for 123 Business. 123 Business (Obligee) requires ABC Flooring (Principal) to purchase a bond for the amount of the job. ABC Flooring calls Bradshaw & Weil in downtown Paducah, KY to purchase a bond from their carrier, RLI Insurance (Surety). If ABC Flooring does not complete the job, then RLI Insurance will reimburse 123 Business for the cost of the job plus additional payments to finish the job up to the amount of the bond if the claim is valid.

Contract Surety Bonds

There are multiple types of bonds under this category. One common contract bond is a bid bond.

Contractors get their work by bidding on construction projects. The developer of the project (Obligee)  often chooses the lowest bid to do the work. Regardless of the bid being high or low, a contract surety bond is a bond that the contractor (Principal) would purchase to guarantee that they will hold to the bid if they win the contract. This bond keeps contractors from submitting unrealistic bids in an effort to win the job. A contract bond would compensate the developer if the contractor fails to uphold his agreement once the contract is signed. It could also compensate the difference between the initial bid and the bid of the contractor who finishes the job.

Fidelity Bonds

Fidelity bonds help protect your business assets from fraud and employee theft. There are different types of fidelity bonds depending on size and type of business. To fully know which type of fidelity bond is right for your business, you should contact your local agent.


Why top secret?

Bonds are not top secret nor were they intended to be. But failing to provide the right information to your local agent or to do your own research beforehand could lead you to believe that a small business insurance policy is all you need. That isn’t always the case. Whenever you are looking to start a new business or to change your insurance carrier it is always best to contact your local agent. Discussing your insurance needs as your business evolves is key to ensuring that you have everything in place to lessen your risk and protect your financial future.