The Contrast Between Insurance Policy and Surety Bonds

moody insurance worldwide

“If your company is contracted to a specific project, the client will take measures to ensure its satisfying completion. This is usually accomplished through insurance plans, but also through a surety bond. Even though this bond is sometimes known as bonding insurance, these two concepts are not the same. Continue reading to learn more about surety bond vs insurance policy.

What is a Surety Bond?

You are likely familiar with how an insurance plan works, while a surety bond is less known. According to moody insurance worldwide, a surety bond is a particular agreement and contract where the bonding company pledges to play the client, or obligee, if the principal, the company performing the labor in question, fails to meet the standards established in the agreement. If the company must pay to the obligee, the principal must pay the company back. There are more specific types of bonds, such as bid, performance, and payment.

Differences With Insurance

An insurance plan would cover more general areas and incidents beyond failure to satisfy the obligee. Meanwhile, the surety bond is a guarantee involving finances, which means the bonding company must run a tighter, more detailed application process. You will have to provide project information, financial records and more to successfully apply for the bond.
Besides their overall goal, insurance plans and surety bonds have different stakes and application process. Knowing the difference beforehand can help you decide and prepare properly.

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