What is the difference between an insurance policy and a bond?

An insurance policy and a bond are both legal contracts used to protect a person’s or business’s financial assets. In Illinois, they both are used to protect individuals or companies from financial loss due to an unexpected event, such as a car accident or natural disaster. The main difference between an insurance policy and a bond is who pays for the coverage. An insurance policy is a contract between the insured party and the insurance company. The insured party pays a monthly premium to the insurance company in exchange for protection for a specified loss. A bond is paid for by the business or individual needing protection, and the bond issuer, such as the state or a bank, guarantees reimbursement in the event of a loss. Another difference between insurance policies and bonds is that bonds typically have a maximum guaranteed amount of protection. Insurance policies typically have no limit; the insurer pays up to the maximum coverage amount specified in the policy. In Illinois, insurance policies and bonds are both regulated by the Illinois Department of Insurance, the state agency that oversees the insurance industry. It is important to understand the differences between an insurance policy and a bond in order to make an informed decision when purchasing coverage in Illinois.

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What is the difference between an insurance policy and a bond?

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