A surety bond is a written agreement to guarantee compliance, payment, or performance of an act. Surety is a unique type of insurance because it involves a third-party agreement.
The three parties in a surety agreement:
Principal - the party that purchases the bond and undertakes an obligation to perform an act as promised.
Surety - the insurance company or surety company that guarantees the obligation will be performed. If the principal fails to perform the act as promised, the surety is contractually liable for losses sustained.
Obligee - the party who requires, and often receives the benefit of, the surety bond.