Short answer
Insurance protects the party that buys it against its own losses. A surety bond protects someone else, the obligee or the public, against your failure to meet an obligation. A bond involves three parties, and if the surety pays a valid claim, you reimburse the surety. With insurance, the insurer absorbs the covered loss.
The clearest divider is who is protected and who ultimately pays. Insurance is a two-party contract where the insurer expects to pay covered claims as part of the bargain. A surety bond is a three-party guarantee among you (the Principal), the Obligee that requires it, and the Surety. The surety expects you to perform, and any claim it pays comes back to you.
That is why a bond requires underwriting that looks like a credit decision, not just a risk pool. You are guaranteeing an obligation, and the surety is backing your ability to meet it.
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