You may need bonding and commercial insurance if you are running a business. But what exactly do these two types of coverage protect against? The former protects your company against financial losses caused by employees who commit fraudulent or dishonest acts. This coverage is also sometimes called surety bonding.

On the other hand, business insurance protects your business against various risks, including property damage, liability, and business interruption. This overage is often required by law if you have employees.

Although these two financial products have some similarities, they are different and have other uses. Let us learn more about them in this piece.

What Is a Surety Bond?

If you will ask commercial insurance brokers, it is a contract between at least three parties: the obligee (the party who is owed a debt or obligation), the principal (the party who will pay the debt or duty), and the surety (the party who guarantees the debt or obligation will be paid). The surety bond protects the obligee from loss if the principal does not fulfill the terms of the contract. The surety bond does not cover the principal; it only protects the obligee. 

In this contract, the surety guarantees the obligee that the principal will fulfill the terms of the contract. The terms of the contract are written in the bond agreement. The surety bond is not insurance; it is a guarantee. The surety company does not pay the debt or obligation; the principal does but only pays if the principal does not. 

If the principal defaults on the contract, the surety company will pay the obligee the bond amount up to the bond limit. The surety company will then require the principal to repay the bond amount plus any expenses incurred in investigating and settling the claim. 

The principal pays the premium for the surety bond to the surety company. The premium is based on the principal’s creditworthiness and the bond’s amount. The premium is usually a percentage of the bond amount and is paid upfront. 

A surety bond is also a financial guarantee that protects the obligee against loss if the principal does not fulfill the terms of the contract. The surety company does not pay the debt or obligation; the principal does. The surety company only pays if the principal does not.

What Is the Difference between a Surety Bond and an Insurance Policy?

We all know that insurance pays out on our behalf when we have an accident or incident. But what about when we are the ones who have to pay someone else? In those cases, we need a surety bond.

Surety bonds are often used in construction projects. The contractor will get a bond from a surety company to guarantee that they will finish the project and pay their subcontractors and suppliers. If they do not, the surety company will pay those debts.

Surety bonds are also used in court cases. If someone is sued and cannot pay the judgment, the court can require them to get a bond to guarantee they can pay.


Investing in surety bonds and business insurance can protect your company better. This way, you can ensure that your company is covered in unforeseen circumstances.

If you want to maximize your company’s protection, you should ask for help from a seasoned commercial insurance broker, and there is no better team than Pascal Burke Insurance Brokerage Ince. We will find the right coverage for your entity and budget. So, contact us now for a quote!