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Insurance vs. Surety

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    Transferring Risk

    • One of the key differences between surety bonds and insurance is how the risk is handled. When you buy an insurance policy for your business, you pay the insurance company a specific amount of premium and then the risk is transferred to the insurance company. If you file a claim, you will pay a deductible and the insurance company will pay the rest. With a surety bond, you still maintain the responsibility, but the obligee, or the person who requires the work done, becomes protected.

    Expectations

    • Surety bond companies and insurance companies also have different expectations when it comes to filing claims. Insurance companies charge enough money in premiums to cover the claims that will be generated by customers. Insurance companies expect you to file claims at some point. A surety bond company does not expect you to file a claim because it knows that you are ultimately responsible for paying for it. Fewer surety bond claims are filed than insurance claims.

    Credit

    • Surety bonds are more similar to a form of credit than they are a form of insurance. With a surety bond, the bond issuer thoroughly checks out your work and your credit history. If you have to file a surety bond claim, the surety issuer pays the claim for you. Then you are expected to pay the amount of the claim back to the surety bond company. Surety companies do credit checks to make sure that you are worthy of being bonded.

    Parties Involved

    • Another key difference is the number of parties involved in the transaction. When you buy and use an insurance policy, the only two parties in the transaction are you and the insurance company. You pay the insurance company premiums and the insurance company then pays the claims that you may file. With a surety bond, three parties are involved. The surety bond company is involved, you are involved and the company or person who orders the work done is involved.

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