How do Surety Bonds differ from Insurance?

Category: Uncategorized
Published: Jan 8, 2009
With insurance, a person is required to pay an insurance premium to their insurance company which essentially transfers most (if not all) risk from the individual purchasing the insurance to the insurance company.  The only similarity between insurance and a surety bond is the payment of a premium, because when a person pays a bond premium for a surety bond they (the principal) do not transfer risk to the surety, and instead, the payment of claims will fall on the principal’s shoulders.  When dealing with surety bonds, the protection goes to the person or entity that requires the principal to purchase the bond (the obligee).

When dealing with losses, insurance companies typically expect to make payment for a certain percentage of a given claim.  However, surety companies do not expect to make such payments on claims, and instead treat the premiums paid for surety bonds as service charges.  The premiums essentially authorize the principal to use the surety’s deep pockets for financial backing, which provide the required guarantee.

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.