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7 minute read Published on Sep 4, 2026 by BrokerLink Communications
If you’re a policyholder for insurance, then it’s important to understand every aspect of your insurance policy. For example, if you’re taking out an insurance policy for your business, knowing the difference between being bonded and being insured is important. Read on to learn more about these terms and how they differ.
Let’s start by defining what it means to be bonded. A bonded business is one that has bought a surety bond. In Canada, a surety bond is a financial guarantee, not insurance for the business, that protects the party hiring the business if legal or contractual obligations aren’t met. Next, let's take a look at the key players of a bonded business:
The principal is the person or entity who purchased the bond, i.e. the company that will be providing the service to the others.
The obligee is the party that requires the bond in order for the principal to be able to do business (e.g., a municipal or provincial government or institution).
The surety is the insurance or bonding company that issues the bond to the principal. The purpose of a surety bond is to protect the third party that is hiring a business from the risk of a loss. The types of losses that a surety bond protects against range from theft or incomplete work to property damage and other failures of the hired company or entity. If a valid bond claim occurs, the obligee makes a claim directly to the surety. The surety may pay the obligee, but the principal is legally required to reimburse the surety for the full amount paid.
You’re most likely to encounter bonding requirements when:
Bidding on public or municipal projects (e.g., federal, provincial or municipal procurement often specifies bid, performance and payment bonds)
Applying for certain licenses or permits (e.g., license and permit bonds are common for regulated trades and service businesses)
Responding to RFPs or large commercial contracts, especially in construction, maintenance, cleaning and security
There are two main types of surety bonds: contract bonds and commercial bonds. Knowing the difference between them can help you decide what type of surety bond is right for you:
Commercial bonds are a type of bond that a business is required to purchase if it wants to work on projects with a government or municipal institution. They are designed to protect public institutions from losses due to a bonded business’s inability or refusal to adhere to relevant laws, regulations or rules. A few of the most common types of commercial bonds include court bonds, probate or fiduciary bonds and licence and permit bonds.
Meanwhile, a contract bond, which might also be referred to as a construction surety bond, is another type of bond that is purchased by businesses for financial protection for the project owner. There are multiple types of contract bonds, such as performance bonds, payment bonds, maintenance bonds, contractor bonds, supply bonds, bid bonds and ancillary bonds. In Canada, standard bond wording is often based on Canadian Construction Documents Committee (CCDC) forms, which are widely used across the construction industry.
You may hear the term “bonded” used to describe protection against employee theft, especially in industries like cleaning, maintenance or security. This is where a lot of confusion comes from.
In Canada, what’s commonly called a “fidelity bond” or “janitorial bond” is usually just crime insurance or employee dishonesty insurance. Crime insurance protects the business if an employee steals from a client.
A surety bond, on the other hand, protects the client if the business fails to meet contractual or legal obligations and any amount paid by the surety must be repaid by the business. For example, if a contractor fails to complete the job, the business’s performance bond would respond. The surety would then pay the project owner and the contractor would be responsible for reimbursing the surety.
Now that you know a little bit more about what it means to be bonded, let’s explore what it being insured means.
Insurance is a type of financial protection that a business or individual can purchase from an insurance company. When you purchase a policy from an insurance provider, you will need to sign an insurance contract agreement. Within this agreement will be a clear outline of the coverage that you are entitled to, whether that be car insurance coverage or general liability insurance for your business.
The main reason that anyone purchases insurance is for the financial protection it offers. Depending on the terms of your policy, you can receive an insurance reimbursement for all kinds of damage and losses. For example, if you are purchasing a commercial insurance policy that includes general liability insurance, then you can be reimbursed for the cost of legal and court fees if a claim is filed against you.
There are many types of commercial insurance coverage available to policyholders in Canada. Continue reading for a breakdown of some of the most popular types:
Commercial general liability insurance (CGL), can help protect businesses against third-party claims involving bodily injury, property damage, personal injury or advertising injury. In Canada, many landlords, property managers and project owners expect businesses to carry $2 million to $5 million in CGL coverage, depending on the nature of the work and access to public spaces.
Specifically, CGL insurance can help pay for the cost of a lawsuit if a claim of bodily injury or property damage is made against your business. The costs that general liability insurance can pay include medical fees, repair bills and legal fees, including defence and settlement fees.
Professional liability insurance, which you may know as errors and omissions insurance, can pay for liability claims that arise from unsatisfactory work, failure to deliver a service as promised and negligence claims.
Product liability insurance is an extension of commercial general liability insurance and can protect you if a lawsuit is filed against your business alleging that one of your products caused bodily harm or property damage.
Cyber liability insurance can help cover costs associated with data breaches or cyberattacks, including legal fees, notification costs and credit monitoring.
Commercial property insurance is for any Canadian business with a physical location. It’s a type of property damage coverage that you can pay to repair your office, warehouse or store if it is damaged due to an insured peril.
Business interruption insurance can help cover various expenses, such as a portion of employee wages or property rent, if your business is forced to shut down temporarily due to a covered loss.
Crime insurance can reimburse you if your business falls victim to a crime, such as employee theft or a customer paying for a product or service with a fake credit card or fraudulent cheque.
Commercial auto insurance is required if a vehicle is used for business purposes, as personal auto insurance does not cover business use. This means that if you drive a car for business purposes, such as delivering products to customers, travelling to clients’ homes or transferring materials from one site to another, you will need to purchase commercial auto insurance for your business.
Although bonds and insurance are often confused with each other, they are not the same. Thus, being bonded does not equal being insured and vice versa. The main thing they have in common is that they both offer financial compensation if a claim is filed. However, the similarities end there. To make sure that you understand how being bonded differs from being insured, we will now compare them side by side to distinguish them from one another:
Bonded (Surety bond)
Insured (Insurance policy)
Who is protected
The client, project owner or authority (the obligee)
The business or individual (the policyholder)
Who gets paid if there’s a claim
The obligee, through the surety company
The insured or a third party, depending on the policy
Who ultimately pays the loss
The business must repay the surety for any amount paid
The insurance company absorbs covered losses
Number of parties involved
Three: principal, obligee and surety
Two: insured and insurer
What underwriting focuses on
Financial strength and ability to meet obligations
Risk of accidental loss or liability
Although it’s not legally mandated in Canada, all businesses should have insurance. However, on top of this, you may also need to purchase additional insurance coverage or bonds. It really depends on what type of business you run, as well as other factors, including:
The type of business you run
Whether you have employees
Whether you use vehicles for work
Whether you work on public projects or regulated contracts
Whether clients or landlords require proof of coverage
The cost of becoming bonded and insured varies greatly based on:
Profession
Type of bond
Level of coverage
Deductibles
Location
The cost of a surety bond largely depends on the conditions of the contract that the bond is going to cover. The main factors that are used to determine how much you will pay for a surety bond are a business’s financials, credit history and ability to perform.
Generally, they are a small percentage of the total bond amount because the surety is guaranteeing performance, not insuring itself against loss. Meanwhile, insurance companies use their own risk-calculation formulas to determine what your business insurance premium will be, such as:
Your years of experience in the industry
The size and location of your business
The annual and projected gross revenue of your business
The number of employees at your business
Your personal insurance claims history
The products or services offered by your business
The coverages, limits and deductibles you select for your commercial insurance policy
To find out how much a business insurance policy will cost you, connect with a local insurance broker today.
If you still have questions about what it means to be bonded and insured, reach out to BrokerLink. One of our licensed insurance advisors can explain how being bonded and insured differ and can even help you find a policy that meets your needs.
We can also explain other insurance terms, such as reinsurance and double insurance. Get in touch to request your free business insurance quote from a BrokerLink insurance advisor today!