Guarantee Insurance - Surety Bond guarantees the fulfillment of an obligation.
A Surety Bond/Letter of Guarantee acts as a guarantee for the fulfillment of financial or other obligations by the Principal/Applicant (the party for whom the guarantee is provided) to a Beneficiary, which arise from legal provisions or lawful transactions. Thus, a triangular relationship is formed, involving the Guarantor, the Principal, and the Beneficiary. This relationship may also be quadrilateral in cases where the Applicant and the Principal (for whom the guarantee is issued) are not the same entity.
The obligation secured by the guarantee typically stems from contracts (e.g., construction or service agreements) or arises from the ordinary course of a business (e.g., payment to a supplier). Almost any sale, service, or agreement can be secured through Surety Insurance, which functions as a Surety Bond.
Guarantee Insurance includes two legal relationships: the Insurance Contract and the Surety Bond.
The first relationship is between the Applicant for the Surety Bond (and the recipient of the Guarantee Insurance) and the Insurance Company, governed by the Surety Insurance Agreement (general and special terms of the product).
The second relationship is between the Insurance Company and the Beneficiary of the Surety Bond, governed strictly by the text of the respective Surety Bond. Every Surety Bond issued is a commitment that must be honored until its expiration and cannot be canceled prematurely unless initiated by the Beneficiary. This constitutes a significant advantage for the Beneficiary.
Surety Insurance is always of a fixed duration.
The amount of Surety Insurance - Surety Bond is always specified.
It generally represents the maximum liability of the Bank/Insurance Company towards the Beneficiary.