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

An insurance policy and a bond are two similar yet distinct forms of protection related to financial risk. Both come with a price tag, either in the form of premiums or costs, but ultimately promise a payout if a claim is made. The primary difference between an insurance policy and a bond is the type of risk that is protected against. An insurance policy is a contract between an insurer and a policyholder. This type of protection covers the risk of physical loss or damage (home, auto, life, health, etc.) and is typically paid for with regular premiums. The insurer agrees to pay up to a certain amount for a specified, covered loss in exchange for the premium payments. A bond is a financial instrument, usually issued by a government entity, and typically guarantees an interest rate and payment of principal to the holder of the bond. Bonds are used to protect the public against risk related to companies or individuals that provide a service or operate a business, such as contractors, subcontractors, public works, or fiduciaries. In contrast to insurance policies, bonds do not cover physical losses or damage, but rather assure the performance of a contract or adherence to laws, regulations, or other standards of care. In summary, the main difference between an insurance policy and a bond is the type of risk that is covered. Insurance policies offer coverage against physical loss or damage, while bonds generally protect against the failure to fulfil a contractual obligation or other legal requirement.

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

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