A surety bond is not the same as insurance.
A bond generally involves three parties:
Principal
The contractor or business required to obtain the bond.
Obligee
The government agency, customer, municipality, or other party requiring the bond.
Surety
The company issuing the bond.
A surety bond guarantees that the principal will fulfill a specific legal or contractual obligation.
If the surety pays a valid claim, the contractor may generally be required to reimburse the surety.