Surety vs Insurance

This is a summary of Contract Surety distinctions compared with its insurance counterparts. Surety bonds and insurance policies are similar in many ways but are also different in some respects, some of which are very important. Besides having different contract language, the forms differ to the extent of the coverage provided. The chart below identifies the most important differences.

Contract SuretyInsurance

Similar to liability coverage in that the insured is responsible for paying the premium and is also the party performing the work that triggers a claim from the obligee


Similar to a first party insured or a third party claimant in that the insurance company compensates for any loss as long as the loss is caused by the principal not performing according to contract terms

Insurance Company

Penalty/Penal Sum

Limits of Liability/Limits of Insurance

Three-party (Tripartite) Agreement

Two-party Agreement

Term of Obligation is indefinite and lasts until the contractual obligation is complete

Term of Obligation is for the specified policy term or period

What is covered?


What is covered?

The perils or causes of loss listed in the policy or coverage form

The Surety may subrogate against the principal for any loss paid to obligee, subcontractors and material suppliers

The insurance company may subrogate only against third parties
Is indemnity available to surety/insurer for loss caused by principal/insured?

Yes. The surety can pursue the officers, stockholders, corporations, and affiliated partnerships on behalf of principal.

Is indemnity available to surety/insurer caused by principal/insured?