surety bond
Quick Summary
A surety bond is a three-party contract that guarantees the performance of an obligation. It differs from insurance because the surety (the guarantor) has the right to recover losses from the principal (the party whose performance is guaranteed).1
Key parties involved:
* Principal: The individual or entity whose performance is guaranteed.
* Obligee: The party protected by the bond.
* Surety: The company or person providing the guarantee.
Surety bonds are often used to ensure contractors complete projects, public officials perform their duties, or fiduciaries manage assets responsibly. They can also cover situations like lost financial instruments or violations of licenses and permits. Unlike most insurance, surety bonds are typically not cancelable by the insurer.1
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