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Surety Bonds

Insurance and Surety Bonds aren’t they the same?  Let’s take a look.....

A surety bond or surety is a contract at least among 3 parties. It is issued by one party (the surety) on behalf of the second party (the principle). This contract guarantees that the second party will complete an obligation to the third party (obligee). If the obligation is not met, the third party can recover its losses from that bond.

Insurance is a form of risk management. It is a two-party contract between the insured and the insurance company. The contract (insurance policy) assumes a guaranteed promise that the insured will be compensated by the insurance company in the event of a covered loss.

Insurance: Protects the insured against the risk
Surety Bond: Protects the obligee

Insurance: The premium paid is designed to cover potential losses
Surety Bond: The premium paid is for the guarantee the principle paid fulfills his obligations

Insurance:  When a claim is paid the insurance company usually doesn’t expect to be repaid by the insured. 
Surety Bond:  A surety bond is a form of credit, so the principal is responsible to pay any claims

Insurance losses are expected and insurance rates are adjusted to cover losses depending on many factors
Surety Bond losses are not expected so surety bonds are issued only to qualified individuals or businesses whose projects require a guarantee
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