The Butler Blog

Licensed, Insured and Bonded-What does this mean?

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It is not unusual to see licensed, insured and bonded in advertisements on truck doors and auto placards. You hear these terms in TV and radio ads, too. As a consumer should you feel more secure by using a company that includes these terms in their advertising? Since I sell insurance and bonds, you probably expect to me say, “Yes!” You’d be wrong. Here’s why:

Licensed

There are two kinds of business licenses. Some licenses are acquired by taking a test. This indicates to the State that the applicant meets some minimum standard of knowledge about their profession. Doctors, nurses, CPA’s, attorney’s, insurance agents, certain types of contractors, hair dressers, etc. must qualify for a license by testing. The second kind of license is the kind you buy. For example, a County or a City business permit or license.

So is the “licensed” person or company competent? The license doesn’t indicate competency.  It just means they have earned or paid for the right to “practice” their chosen profession. That’s it.

Bonded

The term “bonded” is frequently misleading.  Usually, it indicates the company has purchased dishonesty insurance. This form of insurance is commonly, but incorrectly, referred to as a bond.  This insurance provides funds to the insured company to reimburse the consumer if one of the company’s employees steals from the consumer.  Sounds good so far, right? It seems to mean the consumer has some protection under the policy.

Actually, this is not quite true. Here is typical wording from one of these policies. However, this insurance is for your benefit only. It provides no rights or benefits to any other person or organization. Que up…Houston we have a problem! The insured has protection from dishonest employees, you don’t.

Insured

This seems to indicate the advertiser has insurance, but what kind and how much?  For example, a contractor may carry Commercial General Liability insurance but no Workers Compensation insurance. He can truthfully claim to be insured.  But his customers may become legally liable if his employees are injured on their job. Ouch!   

The Solution

Protect yourself with three simple steps:

1. Ask for a copy of their license so you can determine what the company is licensed to do.
2. Ask for a Certificate of Insurance. This will tell you what kinds insurance and how much insurance is in force.
3. Demand written estimates and contracts for your attorney to review.

Depend on written contracts and written proof of insurance to keep your life simple. We are happy to review any Certificate of Insurance to help you understand the information it conveys. It is a free service for all our clients. Just call us at 615-777-1165 or drop us an email for a free consultation.