A guarantee or surety bond is not necessarily carried by an insurance company, although many insurance companies do use their corporate structure and strength in the value of becoming surety to another even though strictly it is not insurance. A bond issued by an insurance company generally protects an individual or corporation known as an obligee from loss arising out of the act or failure of another known as the principal. A fidelity bond is one in which the obligee is usually an employer and the principal an employee and protects against the principal's fraudulent acts, such as embezzlement, conversion, theft, etc. A surety bond - the surety, which may be an insurance company, protects a company or individual known as the obligee against failure of performance of another individual or corporation known as the principal. e.g., a municipality is building a building and lets a contract to a general contractor. The municipality would probably require a bond on the contractor to establish the ability to complete the contract. There are, of course, many other applications. A penalty bond is one in which, in the event of default of the person bonded (principal) the entire amount of the limited bond is due tot he obligee to protect from this and other losses.
