What is a surety bond? Say you opened a business in commercial contracting and you have to get bonded according to your state’s regulations.
You may be asking, why do I need this? This surety bond is enacted so a consumer can do business with a qualified contractor with some piece of mind—which the government wants to help negate risk to facilitate the local economy. If a contractor does not do his job correctly due to negligence or malice (Say they are lazy and decide to cut corners, or did not live up to contract terms), then the customer can file a claim against the bond since the underwriter guaranteed their work!
The difference between this and an insurance plan is the company that bought the bond cannot make a claim against it! Surety bonds are usually made to protect the customer as well as the bonded company in higher risk business scenarios and in situations, but if you are the bonded party and do lose your bond, the surety company will be expected to be reimbursed in full! The surety buyer’s protection is very short lived!