IPT03770 | Overview and the law: how to determine whether there is a contract of insurance: financial guarantees

These usually involve a guarantor promising a creditor that, if a third party does not pay debts to the creditor, the guarantor will do so. Although there are some similarities between an insurance contract and a guarantee, a crucial difference between them is the absence, in the case of a guarantee, of an insurable interest. For example, the debtor could enter into a binding guarantee even though the only person with an interest in the obligation being met is the creditor. See IPT04240 on the ‘reinsurance’ of surety bonds.