Guarantees and insurance for the building industry

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Home > Builders > What is the difference between Insurance and Guarantee?

What is the difference between Insurance and Guarantee?

Put simply a Guarantee means that in the event of a particular event happening, the guarantor will do something if the guaranteed party can’t or doesn’t.
 
Insurance means that in the event of a particular insured event happening, the insurer will pay.
 
A simple comparison may help explain the difference:
 

INSURANCE
GUARANTEE
2 Party Contract
(Builder or Owner, & Insurer)
3 Party Contract
(Builder, Owner & Surety Underwriter)
Duty of Utmost Good Faith
Disclosure: as in ordinary contract law
Cancellable (generally)
Non-Cancellable
Calculates Premium Based on Losses
No Loss Anticipated, Fee for Service
Involves Transfer of Risk
No Transfer of Risk
No Reimbursement from Insured
Principal (Builder) Reimburses Surety Underwriter

 
So the Homefirst Builders Guarantee isn’t Insurance – it meets the builder’s obligations if they can’t, and the underwriter will, if possible, seek recovery from the builder of all payments made by them.
 

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