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

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 ...
Read more

HOW PRINCIPLE OF CONTRIBUTION WORKS IN INSURANCE

HOW PRINCIPLE OF CONTRIBUTION WORKS IN INSURANCE Principle of contribution is implemented when multiple insurance policies are covering the same property or loss, the total payment for actual loss is proportionally divided among all insurance companies. In insurance, the principle of contribution in born from principle of indemnity. It is used to will maintain continued existence to preserve the principle of indemnity Therefore, principle of contribution only applies to those insurance contracts which are contracts of indemnity. In fact, however, there would have been possibilities of getting more than the actual loss had the principle of contribution not been established with legal force. Just to give a probability, the insured would have received a claim in full, numbers of times, by affecting numbers of policies with different insurers thereby defeating entirely the principle of indemnity. Like subrogation, therefore, has come up the principle of contributi...
Read more

FEATURES OF INSURANCE CONTRACT

FEATURES OF INSURANCE CONTRACT Though all contracts share fundamental concepts and basic elements, insurance contracts typically possess a number of characteristics not widely found in other types of contractual agreements. The most common of these features are listed here: (a) Aleatory If one party to a contract might receive considerably more in value than he or she gives up under the terms of the agreement, the contract is said to be aleatory. Insurance contracts are of this type because, depending upon chance or any number of uncertain outcomes, the insured (or his or her beneficiaries) may receive substantially more in claim proceeds than was paid to the insurance company in premium dollars. On the other hand, the insurer could ultimately receive significantly more money than the insured party if a claim is never filed. (b) Adhesion In a contract of adhesion, one party draws up the contract in its entirety and presents it to the other party on a 'take it or leave it' ba...
Read more