Understanding the Difference Between Surety Bonds and Insurance.

• Date: 12 November 2018
• Author: Weisbrot, Eric

* Businesses large and small have two main options for protection--surety bonds and insurance coverage. While some use the terms interchangeably, there are differences between the two that should be understood. Both insurance and surety bonds have unique features that fit specific protection needs, either for the business itself or for the customer. They also differ in terms of when they are needed, and how much coverage costs. Here are the ways surety bonds and insurance differ from one another.

HOW SURETY BONDS WORK

Many business owners may be aware of the concept of surety bonds, but understanding how they work in practice is not widely known. Surety bonds, offered by surety agencies or companies, provide protection to business customers through a unique framework. When a business owner purchases a surety bond, a contract is created. This contract includes three parties--the individual taking out the surety bond, the entity or individual requiring the surety bond, and the surety company backing the bond.

When a bond is in place, the entity requiring a surety bond...