DIFFERENTIATION INSURANCE AND GUARANTEE


DIFFERENTIATION INSURANCE AND GUARANTEE
Insurance is a contract of indemnity whereby Insurer agrees to indemnify, or pay, the insured for many forms of loss while in a contract of guarantee, one party agrees to do something 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 do something on behalf of another -- will step in to pay or perform the obligation.
You can find two major differences between insurance and guarantees. One difference is that insurance is really a direct agreement involving the insurance provider and the policyholder, while a guarantee involves an indirect agreement between a beneficiary and an alternative party, combined with the primary agreement involving the principal and beneficiary. A second difference is that insurance plan 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:
INSURANCE GUARANTEE
In a contract of insurance, you will find two parties i.e. insurer and insured
In a contract of Guarantee you will find three parties i.e. Main Debtor, Creditor & Surety.
Insurance contract is generally cancellable. Contract of Guarantee is Non-Cancellable
Insurance premium is based on the probability and quantum of losses
In contract of business, loss can not be estimated generally so fee is charged for the guarantee service rendered
An insurance contract transfers the Risk There is No Transfer of Risk in a contract of guarantee.



Comments

Post a Comment

Popular posts from this blog

PRINCIPLE OF LOSS MINIMIZATION

PRINCIPLE OF LOSS MINIMIZATION • Under this principle it is the job of the insured to take all possible steps to minimize losing to the insured property on the happening of uncertain event. According to the Principle of Loss Minimization, insured must always try his level best to minimize the loss of his insured property, in case there is an uncertain event like a fire outbreak or blast, etc. The insured must take all possible measures and necessary steps to manage and reduce the losses in this scenario. The insured must not neglect and behave irresponsibly during such events simply because the property is insured. Hence it is just a responsibility of the insured to protect his insured property and avoid further losses. As an example:  Assume, Mr. Arvind's house is set burning as a result of a power short-circuit. In this tragic scenario, Mr. Arvind must try his level best to stop fire by all possible means, like first calling nearest fire department o
Read more

BASIC CATEGORIES OF RISK

BASIC CATEGORIES OF RISK With regards insurability, there are basically two categories of risks; 1. Speculative or dynamic risk; and 2. Pure or static risk Speculative or Dynamic Risk Speculative (dynamic) risk is a situation in which either profit OR loss is possible. Examples of speculative risks are betting on a horse race, investing in stocks/bonds and real estate. In the business level, in the daily Lesson 1  Understanding and Managing Risk  5 conduct of its affairs, every business establishment faces decisions that entail an element of risk. The decision to venture into a new market, purchase new equipments, diversify on the existing product line, expand or contract areas of operations, commit more to advertising, borrow additional capital, etc., carry risks inherent to the business. The outcome of such speculative risk is either beneficial (profitable) or loss. Speculative risk is uninsurable. Pure or Static Risk The secon
Read more

Role of insurance in Risk Management

Role of insurance in Risk Management Insurance is an invaluable risk-financing tool. Few organizations have the reserves or funds required to take on the chance themselves and pay the sum total costs following a loss. Purchasing insurance, however, isn't risk management. A comprehensive and thoughtful risk management plan is the commitment to prevent harm. Risk management also addresses many risks which are not insurable, including brand integrity, potential lack of taxexempt status for volunteer groups, public goodwill and continuing donor support. Risk Management Process Risk Management Comprises of mainly three steps (a) Risk Analysis (b) Risk Identification (c) Risk Assessment (d) Risk Planning (e) Risk Controlling Lesson 1 Understanding and Managing Risk 9 RISK ANALYSIS Risk Analysis is the method of identifying, analyzing and communicating the major risks. Risk analysis involves Once risks have alre
Read more