How is a surety bond different than an insurance policy?
A surety bond and an insurance policy are not the same. The cost of assumed losses are calculated into the price of an insurance policy premium. A bond, on the other hand, is an extension of credit with the expectation that the legal obligation will be fulfilled, and subsequently, there will be no loss. Losses are not included in the cost of bond premiums, only underwriting expenses are factored into the rates. A surety company’s fiscal results are severely impacted when losses on bonds do occur.
