While they may seem similar, there are distinct differences between companies who issue surety bonds and insurance companies. Insurance contracts are between two parties and surety bonds are agreements between three parties. Insurance protects the insured against any risk, while surety bonds protect the obligee. Despite the differences, both insurance agencies and surety companies can be public banks or private lenders.
Dealing with a surety company
A surety bond, unlike an insurance policy, is a necessary document for contractors to secure work with project owners. The project owners use this as a way to ensure that they will be paid if the contractor does not fulfill their obligations per the agreements of their contract.
Process for issuing a surety bond
- A contractor applies for a surety bond
- The surety company examines the contractor’s portfolio, past performance, financial stability, and the size of the project
- The surety company issues the bond to the contractor upon approval
The contractor bids on the project with the project owner and waits to be approved to begin working on the project