Insurance & LiensQuestion 1573 of 1605
The most accurate reason insurance and surety bonds are BOTH used on construction projects is that they:
a.Both allow the provider to absorb losses without reimbursement
b.Are both forms of two-party risk transfer
c.Do exactly the same thing
d.Address different risks — insurance transfers the insured's own fortuitous losses, while bonds guarantee performance/payment to a third party
Explanation
Insurance transfers the risk of fortuitous loss from the insured to the insurer (two parties, no reimbursement). A bond is a three-party guarantee to a third party (obligee) backed by the principal's duty to reimburse the surety. Projects use both to cover distinct risks.
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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)