The Value of Being a Licensed, Bonded, and Insured Contractor

Does being “Fully Licensed, Bonded, and Insured” really give you an advantage when it comes to getting leads and referrals? What does it really mean? Is it necessary? We have the answers.

Whether you’re a general contractor, professional house cleaner, or a master electrician, you’ve probably heard the term “licensed, bonded, and insured” even if you aren't one yourself. That may lead you to wonder, do you need to be? Will it give you a competitive advantage if you are? And exactly what is the difference between being insured and being bonded? If you’ve been asking yourself any of these questions, you’re in luck. We’ll look at the true definitions of being licensed, being bonded, and being insured and help you make an informed decision on whether you should invest in these contracts.

What Does it Mean to be Licensed?  


From plumbers to interior designers, most service-based occupations require a license. Approximately 30% of the workforce in the United States requires a license, in fact. Licenses are required by the state and show that you meet at least the minimum standards for your occupation. If your state requires a license and you don’t have one, the penalty is pretty hefty. On the other hand, there are a number of benefits associated with being a licensed professional:

  • Being licensed means you’ve met the strict standards and guidelines of your occupation in your state, making you more reliable and credible to customers.
  • Being licensed also means you have the potential to make more money by accepting and completing bigger jobs.
  • Customers are also more willing to pay extra for a licensed professional to get the job done right than paying less for an unlicensed handyman.

What Does it Mean to be Bonded? 

If you are a licensed professional contractor, your state may require you be bonded as well. Simply put, being bonded means you guarantee your services to your customers. You have a contract with a bank or insurance company maintaining what is basically a pre-paid savings account. That money is set aside in case the project you’re working on isn’t finished according to the contract between you and your customer. However, there are many types of bonds available, so make sure you have the correct bond types.

Surety Bonds

A surety bond is required by most states for a licensed professional or contractor. There are four types of surety bonds:

  • Bid Bond - a bid bond ensures that you, the bidder, will provide the required payment and performance bonds if you are given the contract.
  • Payment Bond - a payment bond ensures that any suppliers or subcontractors you use will be paid for their work.
  • Performance Bond - a performance bond ensures that the job you take will be completed per the terms of the contract.
  • Ancillary Bond - an ancillary bond ensures that other factors that are required by the project contract - but not necessarily related to performance or skill - are completed per the terms of the contract.

Fidelity Bonds

A fidelity bond is also known as the “feel good bond” because it lets the customer know that they are protected in case of theft during a project. Fidelity bonds are usually not required by state but may help you gain an advantage over some of your other competitors. However, most fidelity bonds require a trial and guilty sentence to take effect. Considering that most thefts never make it to trial, this bond is not as important as some may think.

What Does it Mean to be Insured?shutterstock_153986042-min-1024x683.jpg

It is crucial that you have the proper insurance for your business. For example, a roofing contractor may not need the same insurance policy as a professional interior designer. Both should have some type of insurance, however. Your insurance should cover you and your employees if ever there was an on-site accident. Many homeowners are starting to pay attention to the different types of contractor insurances, so be prepared to present a copy of your certificate of insurance if asked.

So, as for our original question: should you be licensed, bonded, and insured? In short, it can only help. In fact, you may even see an increase in business which will pay for any accrued fees for making your business more reliable, secure, and trustworthy. You never know what is going to happen on a job site and you want to be able to handle anything. Being fully licensed, bonded, and insured will make you, your employees, and your customers feel more at ease and comfortable, so start filling out your applications today!