A Surety Bond is a guarantee, provided by a financial institution, guaranteeing that contractual obligations will be met. If these obligations are not met, then there is a sum of money available to the employer to ensure the contract is completed.
Unlike an insurance policy, a bond is an agreement between three parties – the contractor, the employer (who is the beneficiary of the bond) and the bondsman. Also, insurance policies can be cancelled whereas most bonds cannot. It is there to provide certainty and a protection to the employer. Bonds are prevalent in the construction industry due to the costs involved in replacing a contractor if the original contractor fails to perform, most typically because of insolvency.