Insurance & LiensQuestion 470 of 1605
Which statement best describes the key difference between an insurance policy and a surety bond?
a.A surety bond is a three-party agreement, while insurance is a two-party agreement
b.Insurance is required by the CSLB, while bonds are entirely optional
c.A bond pays the contractor for losses, while insurance never does
d.There is no practical difference; the terms are interchangeable
Explanation
Insurance is a two-party contract between the insurer and the insured that transfers risk of loss. A surety bond involves three parties (principal, obligee, surety) and guarantees the principal's performance or obligations; the surety can seek reimbursement from the principal for amounts it pays out.
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Sen Lin, PrepPass Founder · Verified against California CSLB Contractor License Law & Business Exam · How we review
Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)