The Difference Between Surety Bonds and Insurance: What Arizona Business Owners Should Understand

While bonds and insurance may seem similar at first glance, they serve very different purposes. Understanding those differences can help business owners make informed decisions and stay compliant with state or industry requirements.

What Is a Surety Bond?

A surety bond is a threeparty agreement:

• The principal is the business or individual required to get the bond.
• The obligee is the entity requiring the bond.
• The surety is the company that issues the bond.

A bond essentially guarantees that the principal will follow certain laws, regulations, or contractual obligations. If the principal fails to meet those obligations, the obligee may file a claim. The principal is typically responsible for repaying the surety for any valid claims, which is why bonds do not function like traditional insurance.

Businesses in Arizona may need surety bonds for:

• Contractor licensing
• Motor vehicle dealer licensing
• Notary commissions
• Permit or performance obligations on projects

How Insurance Is Different

Insurance is a contract between a policyholder and an insurer that provides financial protection against covered losses. Unlike a bond, insurance is meant to help protect the insured party, not a third party.

Contact Us

Surety bonds and insurance play very different roles, yet both can be essential for operating a business responsibly in Arizona. The team at Cashway Auto Insurance can help you find the right solution for your needs and budget. Contact us today to get started.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.