Surety Bonds vs. Insurance

California auto dealer bonds—what do they mean for your auto dealership?

You may have heard about surety bonds but aren’t really sure what they are… Many people get confused between bonds and insurance but although they appear similar they can have very different implications for both businesses and consumers. Below you’ll find everything you need to know to understand the difference between surety bonds and insurance.

Surety Bonds vs. Insurance:

Who’s involved?

One of the main differences between insurance and surety bonds is the number of parties involved. In business, insurance contracts are between one party and the insurance company. Bonds are different, they involve three parties: the obligee (the entity or individual who requires the bond), the principal (the business or individual purchasing the bond), and the surety (the entity backing the bond).

Who’s protected?

Insurance and surety bonds are designed to protect different parties:



A business takes out insurance to protect their business from loss. The insurance provides protection against the covered forms of financial loss.

-Surety Bonds

Surety bonds protect one of the three parties involved in the contract—the obligee. The surety company agrees to compensate the obligee should the principal fail to meet the agreed upon contract or license terms. This means that the obligee is protected against loss caused by a breached contract or license requirement.

Who covers the financial losses?

Even though insurance companies often underwrite both bonds and insurance policies they do not work in the same way. When an insurance company pays out on a claim against an insurance policy they swallow the financial loss. However, when they pay out on a claim made against a surety bond they expect to be reimbursed by the bond principal.

What do they cost?

Bond premiums are calculated by the size and type of bond, and by the financial strength of the principal.  Insurance premiums are calculated against the value of the asset being insured or size of the policy.  Insurance takes the risks involved into account as well, such as what type of activity the insured partakes in or type of business they conduct.

Securing the right surety bond

Viking Bond Service has many years of experience helping businesses and individuals obtain an affordable surety bond. Contact us today for all of your surety bond needs.