People often make the mistake of comparing companies that issue surety bonds with insurance companies. While both entities provide security and financial coverage to individuals/organizations, they differ greatly.
An Insurance company policy protects the person who took out the policy to protect in the event of loss, whereas the surety bond protects the owner of the project to ensure that the project is completed according to the terms of the contract.
Here’s a quick look as to how the two differ:
- While a project owner asks the contractor to secure financial coverage for the former through a surety bond, insurance companies can protect both parties for an agreed amount.
- The value of insurance may vary depending on how much coverage the insured person wants; however, the value of a surety bond usually depends on the value of the project.
- Insurance involves two parties, the insurer and the insured. A surety bond has three parties: the principal, the obligee, and the surety bond company.
- Insurance is usually meant to cover the losses, while a surety bond is meant to protect the project owner that his project will be completed according to the contract.