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

Surety bonds and insurance policies are both used as a form of financial risk management. However, there are important differences between the two types of protection. A surety bond is a contract between three parties. The surety is a party that guarantees payment to a third party if the principal fails to meet a contractual obligation or commits a contractual default. The principal is the person who purchases the bond; typically this person is a contractor, subcontractor or business owner. The obligee is the third-party beneficiary who is protected by the surety bond. Insurance policies, on the other hand, are contracts between policyholders and insurance companies. The policyholder pays a premium and the insurance company agrees to pay for any losses that the policyholder may suffer up to the limit of the policy. Depending on the type of policy, the insurance company may cover medical expenses (health insurance), property damage (homeowners insurance), or liability costs (auto insurance). Ultimately, surety bonds and insurance policies both provide financial protection in the event of a loss or liability. However, the key difference between the two is that surety bonds guarantee payment from a third party if a contractual obligation is not met, while insurance policies provide coverage for any losses up to the limit of the policy.

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

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