The main purpose of surety bonds is to provide consumer protection which involves professional services and licenses. Surety bonds are the oldest form of consumer protection in the form of insurance and are really a the opposite of what insurance policies do, that is surety bonds protect the consumer not the principal of the surety bond.
Commercial insurance is a protection against legal action against your business and the most common commercial insurance such as general liability protect your business from property being damaged and injury. This could be caused by fire or people hurting themselves in your commercial property.
There are quite a few forms of commercial insurance that can help you protect your company and many endorsements you can purchase to help you protect your company. It is important to understand that the surety bonds do not protect your company but the consumer or the obligee in cases of fraud or any other statute that is referred to on the surety bond form.
What the insurance does is it pays indemnity to the policy holder and protects your company if anyone should make a claim on your business. Insurance will protect the personal asset from lawsuits that come from wrongful termination, discrimination based on race, age or sex, sex harassment and any other similar events. You could not have this kind of coverage with surety bonds.
The surety bonds will indemnify the surety company and protect the consumer or the obligee if any claim is put forward. With insurance policies you must pay the deductible and the insurance company will cover the rest of the claim as long as it is within the policys limits. You also have the choice of obtaining a higher deducible in order to obtain a lower premium for your policy.
Surety bonds do not offer this option and there are no deductibles, you will in addition have to pay the surety company back for any claim spent by the surety company.
You are required to obtain surety bonds by law if you wish to obtain a license or if you wish to carry out any government contracts. The performance bond will provide a guarantee that money for the project will be completed and that consumer will receive protection. Insurance policies are required by law but you do not need one to obtain a license.
Surety bond amounts are pre-established by the State of Federal Government while insurance policies limits can be raised or lowered. Bonds are underwritten just as loans are, while insurance policies do not need this. Indemnification for insurance policies restores the principal to the financial condition they were in before the time of the loss. Indemnification for the insured in surety bonds restore the surety company to the financial position it was once in before the loss occurred.