7 TYPES OF HOME-BASED BUSINESS INSURANCE
TO CONSIDER
If someone has a home-based business or is thinking about
starting one, it is a good idea to learn about the range of
insurance products available. While a specific business may
not require all types of insurance listed, it is important to
understand the potential risks and insurance options.
Home-based business owners should consider the following
types of insurance for their business:
• Workers’ compensation insurance
• Property and liability insurance
• Commercial auto insurance
• Flood Coverage
• Disability insurance
• Life insurance
BUSINESS INSURANCE DC DOING BUSINESS GUIDE 2018/2019 81
BONDING
An insurance bond offers assurance that one party will be
responsible for the faithful performance of another party. It is
different from insurance in that there are three parties involved
in a surety program, while only two parties are involved in a
typical contract of insurance. Surety programs usually involve
the obligee (the obliging party). This can be a contractor,
state, local or federal government or individual(s) requesting
services) and the obligor (the performer or principal). The final
party to a surety contract is the surety. There are five general
types of contract bonds available for small businesses offering
products/materials or services to others:
1. A BID BOND or tender bond is a type of surety bond issued
by surety or insurance companies specializing in this type
of product. The bond is taken out by an entity during the
bidding process for a project. The bond guarantees that
the successful bidder will enter into contract once the bid
is accepted and will furnish a performance bond.
2. A PERFORMANCE BOND guarantees that the entity will
perform and complete the work in accordance with the
contract and related documents and that such work, when
completed, will be free of liens.
3. A PAYMENT BOND, also known as a labor and material
bonds, ensures that subcontractors and material suppliers
are paid.
4. A MAINTENANCE BOND guarantees that the work is
free from defects in workmanship and materials for a
designated period.
5. An ANCILLARY BOND guarantees that non-material,
incidental or essential performance requirements of a
contract will be satisfied. An example of performance
requirements would be compliance with an ordinance,
rule, special term, obligation or regulation. Most capital
work projects put out to bid require the successful bidder
to lodge bonds after being awarded the contract. Business
owners should contact their insurance or surety companies
to find out what they offer. Visit businessinsurance.com for
general business insurance information.
It is important to note that there are other types of surety
bonds, in addition to those falling under contract bonds,
that may be required when doing business with a regulatory
authority or engaging in certain business activities. Two of
the more notable are federal surety bonds which guarantee
compliance with federal laws or regulations and license and
permit bonds.
Federal surety bonds primarily guarantee compliance with
federal laws or regulations. This type of bond may be required if
a business is involved in importing or exporting goods to other
states or countries and guarantees payment of duties or taxes.
License and permit bonds are often required by licensing
authorities as a prerequisite to engaging in certain business
activities.
CAPTIVE INSURANCE
Captive insurance is a type of insurance that allows
businesses to self-insure their risks rather than buy coverage
from commercial insurers.
A captive insurance company, or captive, is an insurance
company owned by a single business or a group of businesses
that only insures the commercial risks of its owner or
owners. A captive can be useful when insurance coverage
is not offered by commercial insurers or when it is too
expensive. A captive is not permitted to sell insurance to the
general public or issue personal lines of insurance. Captives
allow businesses to take financial control and manage risks
by underwriting their own insurance, instead of paying
premiums to third-party insurers. The potential advantages
of such self-insurance include lower costs, protection tailored
to the organization’s needs, more control over risks and
tighter control over financial resources.
Captive insurance companies are chartered in the District by
the Risk Finance Bureau at the DEPARTMENT OF INSURANCE,
SECURITIES AND BANKING.
(202) 727-8000 · disb.dc.gov
/businessinsurance.com
/disb.dc.gov