Which of the following best describes the purpose of a surety bond?

The purpose of a surety bond is fundamentally to guarantee the performance of a contract. This type of bond involves three parties: the obligee (the party that requires the bond), the principal (the party that purchases the bond and is responsible for fulfilling the contractual obligations), and the surety (the entity that issues the bond and assures the obligee that the principal will perform as promised). If the principal fails to fulfill their obligations, the surety will compensate the obligee for any losses incurred as a result.

In contrast, options that suggest providing financial coverage for fire damages, covering health-related expenses, or offering life insurance benefits do not describe the function of a surety bond accurately. Fire damage coverage pertains to property insurance, health-related expenses are more tied to health insurance policies, and life insurance benefits provide payouts upon the death of the insured. Each of these other options addresses specific forms of coverage related to property, health, and life insurance, which are distinct from the contractual guarantee assured by a surety bond.