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

A surety bond and an insurance policy are two different forms of protection for individuals and businesses. A surety bond is a three-party agreement between a principal (obligee), surety (guarantor), and obligor (principal). The obligee is the one seeking protection and the obligor is the party providing it. The surety provides a guarantee that the obligor will follow through on the obligations outlined in the bond. An insurance policy is a contract between an insurer and an insured, in which the insurer agrees to compensate the insured for losses incurred as a result of certain risks or hazards. In exchange for a premium payment, the insurer agrees to pay compensation for covered losses up to the amount of the policy limit. The main difference between a surety bond and an insurance policy is that an insurance policy covers the insured losses up to the policy limit, while a surety bond covers potential losses of the obligee due to the failure of the obligor to comply with obligations. Another difference is that insurance policies can be cancelled or renewed, while surety bonds are usually fixed agreements. Finally, surety bonds also typically have a guarantee of payment, while insurance policies may have deductible or co-insurance requirements, which may reduce the amount of recovery.

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

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