What parties are involved in a surety bond?

A surety bond involves three primary parties: the principal, the obligee, and the guarantor. Understanding each role is key to grasping how surety bonds function.

The principal is the party that needs the bond and is responsible for fulfilling an obligation, such as completing a project or adhering to certain regulations. The obligee is the party that requires the bond, often a government entity or an organization that wants to ensure that the principal meets its obligations. Lastly, the guarantor, often called the surety, is the party that backs the bond and guarantees that the principal will fulfill its obligations. If the principal fails to do so, the guarantor is responsible for compensating the obligee for any losses incurred.

In contrast, the other choices describe different relationships or roles not specific to surety bonds. The first choice pertains to a typical insurance relationship, where the insured is covered by the insurer. The third answer focuses on a dispute context between a claimant and a respondent, while the last option highlights a relationship primarily relevant to agency law. Thus, option B accurately represents the distinct and critical roles involved in a surety bond.