Surety insurance, also known as a surety bond, involves a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee)
. Surety bonds provide protection to project owners, guaranteeing that work will be completed according to the agreed contract
. Unlike traditional insurance, surety bonds are underwritten with the expectation that a claim is highly unlikely
. The surety bond typically includes an indemnity agreement whereby the principal contractor or others agree to indemnify the surety if there is a loss
. The surety on a bond is usually an insurance company whose solvency is verified by private audit, governmental regulation, or both
. The claim amount in a surety is still retrieved from the principal, either through collateral posted by the principal or through other means
. Unlike most insurance policies, surety bonds do not protect the owner of the policy, but rather provide a financial guarantee to third parties such as customers, suppliers, or state taxpayers
