It seems to many that the process of buying an insurance policy is simple – come, pay, and pick up. And if something happens, the company compensates for the costs. Today the situation has changed a little. The practice of suretyship has firmly entered the insurance industry. What is a guarantor for insurance and what is its function, we will find out in this article.
Simply put, an insurance guarantor is a person or organization that guarantees the payment of bills or other obligations. If we are talking about insurance, then there are guarantors from both parties who have agreed. On the part of the company, these are organizations that take responsibility that the company will pay the appropriate amount due in case of an insured event. Such organizations check the solvency of insurance companies, conduct their audit, and if problems are found, they assume the obligation to pay compensation. Payments are made according to a complex system of priority positions. Guarantor organizations are subject to politics and laws, so their activities may differ from country to country and even from state to state.
We are more interested in the question – “what is an insurance guarantor?” on the part of the one who buys the policy. Everything here is also quite simple. This is the person who undertakes to pay insurance premiums if the insured person is unable to do so. Most often, relatives or close people become guarantors for insurance policies.
Now we will talk about the role of guarantors in the case of different insurance policies.
You have probably come across the term guarantor in the forms that you were given to fill out in hospitals. According to statistics, 49% of survey respondents said that a $1,000 bill could be a real problem for them. So, a guarantor is a person who is ready to pay your medical bills in case you cannot do it or your insurance company. Most often, guarantors come into play when the insurance policy does not cover the cost of treatment.
The patient himself can become a guarantor under an agreement with a medical institution if, for health and financial reasons, he can pay the bills. It can be a husband or wife, as well as any other person who signed the contract and assumed obligations. Also, guarantors for medical bills are always the parents or guardians of children, as well as adults who need a guardian.
When we talk about health insurance premiums, they are most often paid from the employee’s salary by the employer or union. But still, health insurance is an agreement between the insured item and the insurance company, and you can have a “guarantor health insurance”. Such policies have a validity period of one year and can be passively renewed after the expiration of this period. You have to be careful with this extension. After all, this is not getting the same policy, but the conclusion of a new contract, in which not only the rate can be changed, but also the coverage. Therefore, upon the occurrence of an insured medical event, the guarantor undertakes to pay all bills if the patient cannot do this himself.
Health insurance companies are careful about who is the guarantor for insurance. To be honest, they are not even always interested in you having a guarantor, because if you stop paying your contributions, they will simply withdraw from the obligation to cover your bills without returning the money. This is even beneficial for many not entirely honest insurers.
With the guarantor on the part of the insured person, everything is more or less clear, but as for the insurance company itself. What happens if it cannot fulfill its obligation and does not pay the medical bills it owes? You can hold it accountable. Depending on the policy, companies assume obligations to pay bills for services included in the insurance list, pay the cost of prescription drugs and pay for mass hospitalizations and treatment for industrial accidents.
Under the laws of various states, health insurance companies need to enter into specialized associations of insurance guarantors and support them. If the company becomes insolvent, the association takes over the payments. This is the guarantor for insurance on the part of the insurance company. Here another question may arise, whether the guarantor covers all the obligations that the company had to the insured person. These are already special cases and they are considered separately.
We are talking about a whole series of different insurance policies:
- Auto insurance – compulsory insurance, as well as additional coverage from accidents on the road for those who are thinking about how to save money on car insurance.
- Real estate owner insurance – against cases when the property of the insured person is damaged.
- Natural disaster insurance – these include fires, floods, hurricanes.
- Accident insurance – personal insurance.
- Insurance of risks associated with professional activities.
- Workers’ compensation.
If we are talking about guarantors on the part of the insured person, then the meaning of what is guarantor insurance does not change. This is the person who undertakes to pay insurance premiums when the insured person himself cannot do this.
The situation with these policies is as follows – you pay insurance premiums and the company pays you compensation in the event of a disaster that is included in your policy. In this case, the company is obliged to negotiate and indicate who will fulfill the obligation instead of it if it cannot do so.
In this case, the IGA – accident insurance funds and property insurance funds – come into play. If the company conducts insurance activities in a certain region or state and has a license for it, it must be included in this fund. Further, the sequence is as follows – if a member of the association (as the funds are also called) cannot fulfill their payment obligations, other companies that are members of the fund take them. That is, it turns out that all guarantor insurance companies are both insurers under their policies and guarantors under the policies of their colleagues.
You need to be careful that the IGA does not guarantee full coverage, funds are willing to pay a certain amount when it comes to all policies, except for workers’ compensation. These policies are always covered in full.
A life insurance contract is always concluded between the insurance company and the client, but the beneficiary is a third party. Payments under such contracts are made only in the event of the death of the insured person and they are always substantial. Therefore, it is extremely important who is the guarantor of insurance on the part of the insurance company.
The Life and Health Insurance Association (LHIGA) is the guarantor for the payment of insurance in the event of the bankruptcy of an insurance company. An insurance company cannot obtain a license and operate legally if it is not a member of this association. All insurers that are part of this organization are collectively responsible and cover insurance payments in the event of bankruptcy of one of the members. But everything is not so rosy, very rarely LHIGA guarantees full coverage under the policy. In some states, there are fixed amounts that the foundation pays out in the event of the bankruptcy of its member. All these provisions are spelled out in your contract, but you probably didn’t even read them, because this is a postscript in the smallest print at the bottom of the page.
In conclusion: an insurance guarantor is a good practice for both the insurance company and the insured person. Both parties can be sure that the obligations under the contract will be fulfilled.