A surety bond is an agreement entered into by three parties — the surety company, the principal and the obligee. In the agreement, the surety company guarantees the performance and/or legal or regulatory obligation by the principal to the obligee. Here are some key differences between surety bonds and traditional insurance policies:

• Surety bonds are an agreement between three parties, while traditional insurance policies are an agreement between two parties.
• Surety bonds protect the obligee, while traditional insurance policies protect the insured.
• With surety bonds, there is no expectation of loss, while traditional insurance policies are calculated by pooled risk.
• Surety bonds are project specific, while traditional insurance policies are usually term specific.
• Surety bonds are based on a penal sum, while traditional insurance policies are based on policy limits.

Contract bonds and commercial bonds

Contract bonds and commercial bonds are the two main types of surety bonds. While contract bonds are typically written for construction projects, where the obligee is the project owner and the principal is the contractor, commercial bonds are written for a multitude of different industries.

Some common types of contract bonds are bid bonds, performance bonds, payment bonds and warranty/maintenance bonds. Some common types of commercial bonds are court bonds, license and permit bonds, public official bonds and fiduciary bonds. Check out this in-depth guide to learn more about which surety bonds are often required by various industries.

More information

Whether your needs are for contract or commercial bonds, Liberty Mutual® Surety has you covered! As the world’s largest surety, we have the strength and expertise to help contractors and businesses of all sizes access the bonds they need to thrive.

To learn more or get started, visit the surety bonds page.