Which statement best describes the use of a surety bond?

A surety bond is primarily designed to ensure that an obligation, such as the completion of a project, is fulfilled. This bond involves three parties: the principal (the party who needs the bond), the obligee (the party who requires the bond), and the surety (the issuer of the bond). In the context of a construction project, for example, a surety bond guarantees that the contractor will complete the work according to the contract terms. If the contractor fails to perform, the surety will step in to cover the financial loss incurred by the obligee, ensuring that the project is completed.

This function distinctly separates it from the other options. For example, while bankruptcy can affect financial obligations, surety bonds do not necessarily guarantee payment in such scenarios. They are not designed to provide health insurance, nor do they act as a replacement for traditional insurance policies, which handle risk management in a different manner. The focus of a surety bond is on the performance guarantee rather than covering unexpected health-related costs or acting as an insurance alternative.