A guarantee is a unilateral contract in which the guarantor undertakes to make a payment to a specified beneficiary within certain limits of a stated sum of money when the third party (contractor / supplier) fails to perform an obligation as per the terms of the contract. The Insurance Agency in this case becomes the guarantor.
There are 2 types of Inusrance Guarantees available:
This is a written guarantee from a third party guarantor (A Bank or An Insurance Company) submitted to a Principal by a Contractor (bidder) which ensures that on winning of a bid, the contractor will proceed with the contract and will replace the bid bond with a performance Bond otherwise, the guarantor will pay the principal the difference between the contractor’s bid and the next highest bidder.
A bid bond is not an insurance, and (if cashed by the principal) the payment amount is recovered by the guarantor from the contractor
Also known as a contract bond. It is issued by an insurance company to guarantee satisfactory completion of a project by a contractor. It ensures payment of a sum (not exceeding a stated maximum) of money in case the contractor fails in the full performance of the contract.