Question

Define and describe the concept of a surety. In your response define and describe the concept of an insurable interest and the factor of risk as it applies to insurance.

Answer 1

Surety:

Surety is a promise or a guarantee by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. The person or party who guarantees is called a "surety" or a "guarantor". In case a borrower defaults on the payment, guarantor shall be responsible to pay the debt on his/her behalf. It must be noted that a surety is not an insurance policy. The payment made to the surety company is payment for the bond, but the principal is still liable for the debt. The surety is only required to relieve the obligee of the time and resources that will be used to recover any loss or damage from a principal. The claim amount is still retrieved from the principal through either collateral posted by the principal or through other means.

Insurable interest:

An insurable interest is a stake in the value of an entity or event for which an insurance policy is purchased to mitigate risk of loss. Insurable interest is a basic requirement for the issuance of an insurance policy, making it legal and valid and protecting against intentionally harmful acts. Entities not subject to financial loss from an event do not have an insurable interest and cannot purchase an insurance policy to cover that event. Insurance is a method of pooled risk exposure, and it protects policyholders from financial losses. A number of insurance tools have been created to cover losses related to automobile expenses, health care expenses, loss of income through disability, loss of life and damage to property.