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Surety Bonds vs. Insurance Quiz

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Questions and Answers

What is the main difference between a surety bond and insurance?

Insurance policies protect the owner, while a surety agreement protects the insured

Surety bonds are based on a set fee and assume no losses, while insurance premiums are based on the level of risk.

Insurance covers specific losses, while a surety bond is for losses of any kind (correct)

A surety agreement transfers risk, while insurance does not.

What happens if a loss is anticipated?

The surety will still issue a bond

The surety will not issue a bond (correct)

The surety will issue a bond with a higher premium.

The surety will issue a bond with a lower premium.

What does a surety do in case of a contractor's default?

The surety takes responsibility for the contractor's work.

The surety seeks compensation from the owner.

The surety seeks compensation from the contractor.

The surety seeks compensation from a party responsible for the contractor's default. (correct)

What is the purpose of a surety bond?

To assure the owner that the contractor is financially responsible Signup and view all the answers

What is the similarity between a surety bond and a cosigner for a minor's credit purchase?

Both are irrevocable once issued Signup and view all the answers

How are surety premiums calculated?

Based on a set fee and assume no losses. Signup and view all the answers

Study Notes

A surety bond assures the owner that the contractor is financially responsible.
A surety bond is not the same as insurance.
Insurance policies protect the insured, while a surety agreement protects the owner.
Surety premiums are based on a set fee and assume no losses.
If a loss is anticipated, the surety will not issue a bond.
A surety can seek compensation from a party responsible for a contractor's default.
A surety bond is for losses of any kind, while insurance covers specific losses.
Insurance transfers risk, while a surety agreement does not.
Once a surety bond is issued, it is irrevocable.
A surety bond is analogous to a cosigner for a minor's credit purchase.

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Description

Test your knowledge on the differences between surety bonds and insurance. Learn about financial responsibility, protection of parties involved, premiums, losses coverage, and more.