What is a surety bond?

Surety Bonds are different then your typical insurance in several ways.

A surety bond is a three-party agreement between the principal, obligee, and surety. The obligee requires the principal to obtain the bond, and the surety is the carrier backing the guarantee.

The principal may be the party paying for the bond, but the principal does not receive any funds in the event of a claim. The bond covers the clients of the principal; for instance an electrical contractor could have a claim on his/her bond, in which case the obligee (the client he/she is doing the work for) would recoup funds to pay another contractor to finish the job. The surety would look to the principal for payment of the claim and the associated attorney fees.

Surety bonds also differ from your typical insurance in that when an underwriter looks at an account they will write it assuming there is no claim/loss in the future. This is another reason why everyone is not qualified, they do not want to write risks which may have a claim. Insurance will write risks assuming there is a loss upcoming in the future and will adjust the premium accordingly.