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Difference Between Insurance And Guarantee

Difference Between Insurance And Guarantee:

Insurance And Guarantee Distinction

Insurance is a contract of indemnity whereby Insurer agrees to indemnify, or pay, the insured for certain types of loss while in a contract of guarantee, one party agrees to act on behalf of another should that second party default. In plain terms, this means that if an individual fails to pay her guaranteed debt or to perform some other duty or obligation, the guarantor -- the party who has agreed to act on behalf of another -- will step in to pay or perform the obligation.

There are two major differences between insurance and guarantees. One difference is that insurance is a direct agreement between the insurance provider and the policyholder, while a guarantee involves an indirect agreement between a beneficiary and a third party, along with the primary agreement between the principal and beneficiary. A second difference is that insurance policy calculations are based on underwriting and possible loss, while a guarantee is focused strictly on performance or nonperformance. In addition, insurance providers or policyholders can cancel policies with notice, while guarantees often cannot be canceled. The difference between a contract of Insurance and a contract of guarantee are as given below:

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(1). In a contract of insurance, there are two parties i.e. insurer and insured while In a contract of Guarantee there are three parties i.e. Main Debtor, Creditor and the Surety.

(2). Insurance contract is generally Cancellable. Contract of Guarantee is Non-Cancellable

(3). Insurance premium is based on the probability and quantum of losses. But In contract of business, loss cannot be estimated generally so fee is charged for the guarantee service rendered

(4). An insurance contract transfers the Risk. However, there is No Transfer of Risk in a contract of guarantee

Insurance Law And Practice - ICSI
Difference Between Insurance And Guarantee Difference Between Insurance And Guarantee Reviewed by Blog Editor on Sunday, April 30, 2017 Rating: 5

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