A surety bond is an agreement consisting of 3 parties:
- the obligee - party receiving the contract guarantee via provision of a bond
- the principal - the party performing the contract
- the surety - party that assures to the obligee the principal will complete the contract
The surety bond is a guarantee that the surety will meet contractual obligations due to the obligee should the principal default. A bond will always protect the obligee, not the principal.
Surety vs. insurance
A surety bond assures the obligee that the principal will fulfill the contractual obligation.
An insurance policy is a 2-party agreement where the insurer agrees to reimburse the insured as a result of a loss by a designated cause.
Types of Bonds
- Contract bonds
- Commercial surety bonds
- Fidelity bonds