A surety bond is standard practice for many construction and contracting companies. If you sign up for a new construction project or renew your license, you’ll need a surety bond. These are sold through an insurance company, but the bond is an agreement, not insurance.
With a surety bond, the insurance company agrees to cover the damages to a third party if you fail to deliver some part of your work agreement, and you then repay the insurer. This is how small-business construction companies and contractors are able to offer financial guarantees.
The most common surety bond for contractors is a permit or license bond, which is a financial guarantee to the government office that licensed you. This is because local governments can be sued for licensing you, so they want to protect themselves.