Skip to main content

SURETY INSURANCE

 

    Surety Insurance                    

  Surety; the word itself means caution and is familiar to all ages. Even a layman would know that it is about finance and money. Surety Insurance is the latest addition to the insurance market. Surety insurance provides an assurance to the project owner in the form of a Surety Bond that the contractor would complete the project as per the agreed terms and conditions.

Who can buy:

Surety Insurance Contracts may be offered to infrastructure projects of government/private in all modes such as construction companies in India that cover road projects, housing/commercial buildings and other projects of Government/Private.

Surety Insurance contracts shall be issued only to specific projects and not clubbed for multiple projects.

Geographical Area:

Surety Insurance contracts shall be issued for projects only in India. Further, the payment of premium for the risk covered under the surety insurance contracts shall also be made in Indian rupees.

Types and Definitions of Surety Contracts

Advance Payment Bond: It is a promise by the Surety provider to pay the outstanding balance of the advance payment in case the contractor fails to complete the contract as per specifications or fails to adhere to the scope of the contract.

Bid Bond: It is an obligation undertaken by a bidder promising that the bidder will, if awarded the contract, furnish the prescribed performance guarantee and enter into contract agreement within a specified period of time. It provides financial protection to an obligee if a bidder is awarded a contract pursuant to the bid documents, but fails to sign the contract and provide any required performance and payment bonds.

Contract Bond: It provides assurance to the public entity, developers, subcontractors and suppliers that the contractor will fulfil its contractual obligation when undertaking the project.

Customs and Court Bond: This is a type of guarantee where the obligee is a public office such as tax office, customs administration or the court, and it guarantees the payment of a public receivable incurred from opening a court case, clearing goods from customs or losses due to incorrect customs procedures.

Performance Bond: It provides assurance that the obligee will be protected if the principal or contractor fails to perform the bonded contract. If the obligee declares the principal or contractor as being in default and terminates the contract, it can call on the Surety to meet the Surety’s obligations under the bond.

In large construction or infrastructure projects, bank guarantee/surety bond is a contractual requirement or precondition of the project owner for awarding an order to the contractor. In case the contract is not honoured, the bank/insurance company is called upon to pay the bond or otherwise assure the finalization of the contractual obligation.

Retention Money: It is a part of the amount payable to the contractor, which is retained and payable at the end after successful completion of the contract.

Features of Surety Insurance contract

It shall be a contract of guarantee under Section 126 of the Indian Contract Act, 1872.

It is a contract to perform the promise, or discharge the liability of a third person in case of default. The person who gives the guarantee is called the “Surety”; the person in respect of whose default the guarantee is given is called the “principal debtor”, and the person to whom the guarantee is given is called the “creditor”

It benefits the project owners as insurers can work together with

·         Banks or other financial institutions such as NBFCs to share risk information, technical expertise to monitor projects, cash flow amongst other aspects.

·         Contracting awarding authorities in order to evaluate the risk with more information and data.

 

Need for Surety Bonds:

Surety Bond is an option and an alternate to bank guarantees. Surety bonds are typically conditional whereas bank guarantees are on demand of collaterals and other processes.

Banks are not providing any waivers on collaterals for granting bank guarantees and are compelled to exercise tighter controls in issuing bank guarantees due to increase in NPA’s after the big corporate failures. Contractors, developers are in a fix as obtaining bank guarantees has become very difficult.

Luckily, surety bonds shall be accepted as an alternative form of guarantee by Reserve Bank of India (RBI) and Government Departments and accordingly reflect in the appropriate contract documents.

Surety Bond is an instrument that protects the project owner, contractors against default. Participation of the insurer is an added value to all stakeholders.

Disclaimer:   

Zen Insurance is an IRDAI registered broker which facilitates quick & accurate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products

 

 

 

 

 

Comments

Post a Comment

Popular posts from this blog

PERSONAL ACCIDENT INSURANCE

  PERSONAL ACCIDENT INSURANCE Personal accident insurance covers death, disablement, bodily injuries to the Insured resulting solely and directly from accident caused by external violent & visible means within 12 months of its occurrence . Accident may include events like: ·          Rail/Road/ Air accidents ·          Injury due to any violent collision/ fall ·          Snakebite, ·          Burn Injury, Drowning, Poisoning etc. Who can buy this policy? Individuals Members of Family Members of Groups Organizations What is the cover? Table I    Death cover Table II     Death and Permanent Total Disablement Table III Death Disablement & Temporary Total Disablement Other Features are: l   Free look Period:   I nsured will be allowed a period of at least 15 days from the date of receipt of the policy to review the terms and conditions of the policy and to return the same if not acceptable. l   Cumulative bonus: Compensation payable shall be i
Post a Comment
Read more

Insurance policies for human resources in an organisation

                                           Of all the capitals invested in an industry, human capital is the top most. Human resource is largely acclaimed to be the wealth behind a successful organisation. Employees are the real cogs in the wheel who keep the industry running despite setbacks. In such a scenario, employee retention assumes significance which in itself is a huge task. A disgruntled employee can mar a company's reputation or  impede the seamless progress of a business. We hear a lot of organisations facing employee attrition  i.e losing talented, high-performing, high value employees. Employers must engage the employees and prevent attrition with various programmes and employee benefits such as: Training and development  Award and rewards While there are numerous factors for employee attrition, a poor compensation scheme or lack of proper employee benefit program are major reasons. Another factor for employee attrition is the way companies treat their employees when
Post a Comment
Read more

PROJECT INSURANCE

                                                                      PROJECT INSURANCE Following the Make in India directions of the government, the manufacturing and infrastructure sectors have made inroads into the economic activity. Large construction projects involve a number of hazards both for Principals as well as Contractors and the only way to safe guard against all natural and human hazards is by way of Insurance policies. Various types of policies are designed and customized in keeping with the prevalent needs. Construction Phase Insurance (Project Policies) These are one time policies issued for entire project period irrespective of whether the project period is a few days or a few years: I.                      Contractor’s All Risk Insurance (CAR) II.                    Erection All Risk Insurance (EAR) [ also known as Storage-cum- Erection or SCE Insurance] III.                  Marine – cum – Erection Insurance (MCE) I. Contractors All Risk (CAR) Insura
Post a Comment
Read more