While surety bonds are considered an insurance product, they’re actually very different. Insurance is a two-party contract, while a surety bond is a three-party contract.
With insurance, the two parties are the insured and the insurance company. If the insured suffers a covered loss, the insurance company pays the insured.
A surety bond, on the other hand, is a three-party obligation. The three parties are:
The 3 Parties of a Surety Bond
While an insurance product, a surety bond is underwritten similarly as a loan. To put it simply, the surety is a professional co-signor, guaranteeing the performance of the principal.