With the rapid advancement of insurance throughout the world, various types of increasing needs and demands from the insuring community have emerged. Hardly we will find a field where insurance has not entered for providing us protection. Mainly the following types of insurance policies are providing the protection to global community.
1. Fidelity Guarantee Insurance: This type of insurance policy covers the insured regarding the loss sustained by him arising out of fraud, defalcation or dishonesty shown by the employee of the insured. Generally those employees are covered by this sort of insurance who either handle cash or hold positions of trust. Four types of guarantees are available depending on the class of employees, viz.,
- Commercial Guarantees, for persons other than below.
- Court Bonds, for administrators, receivers and other appointments.
- Government Bonds, for trustees, customs and excise people.
- Guarantees, for Local Govt. Officers.
2. Credit Insurance: Nowadays, international business is mainly transacted on credit basis and exporters may sustain heavy losses due to possible insolvency of the buyers of such goods or because of protracted default in payment on the part of buyers. The main reason of credit insurance is to ensure financial protection to such exporters arising out of non-payment.
Payment of the price of the goods may not be possible for the buyers on account of the outbreak of war and due to the restrictions imposed on remittances abroad. In addition, there is always the question of possible insolvency of the buyer. Export Credit Guarantee Scheme aims at providing cover to the exporter (insured) arising out of :
- such political risks and
- insolvency of the buyer.
3. Performance Bond: This type of insurance policies mainly aims at providing protection to those who are responsible under a contract to perform a few obligations within a specified time or as per certain predetermined standard. If the performance cannot be made as per the contract leading to a loss for the principal, then the principal would have a right under the contract for claiming damages or compensation for the non-payment of the contractor or the person who is to perform a certain obligation under the contract.
For example, construction of buildings, roads, bridges, mills, factories etc., or may relate to a loan agreement repayable as per certain terms and conditions. Such persons, sometimes of their own or sometimes at the direction of the principal, are required to take such Performance Bonds or Surety Bonds, when insurance companies stand as sureties or guarantors.