If someone cannot afford to pay their bills or meet their deadlines, insurance guarantors can assist with fulfilling their contractual agreement so that they can pay on time. Essentially, they help those in financial need pay their debt until they can afford to pay the guarantor back.
Understanding what an insurance guarantor is will help you understand their purpose and why they are beneficial for people who cannot pay their bills.
What Does Guarantor Mean?
A guarantor is simply someone who acts as a guarantee for those who might not be able to afford to pay their bills. Guarantors will provide the payment, or fulfil the contract as requested, to oblige with the agreement on behalf of the individual.
For instance, a guarantor on a medical bill will pay on behalf of the patient receiving treatment. Their responsibility is to pay for the rendered services and, more often than not, bring the patient in for the treatment and support them throughout the process.
Likewise, if you are wondering what an insurance guarantor is, it is a simple reflection of a health insurance guarantor for medical bills. An insurance guarantor will be someone who can act on behalf of someone who cannot pay their bills.
Types of Guarantors
The definition of a guarantor is “a person or thing that gives or acts as a guarantee.” There are different fields for guarantors to work in; therefore, several different guarantors can offer various services to fulfill your needs and contractual agreements.
These services may differ depending on what you need help with. For example, some specific guarantors can help those who don’t earn enough income or have poor credit histories.
See below for the various guarantees for loans and support that guarantors can offer.
Guarantors as Certifiers
When a guarantor acts as a certifier, they help an individual apply for driving licenses, visas, and passports. Anything that requires photo identification can be backed up with a guarantor that acts as a certifier. They will usually give a statement or sign a document to let the company know that they can confirm the applicant’s identity.
Limited vs Unlimited
The rules for a loan guarantor differ when it comes to limited and unlimited services. A limited and unlimited guarantor simply reflects the timetable they are expected to help the individual.
A limited guarantor will be someone who guarantees help with a loan up to a specific period. This could be half of the contract or just a tiny portion of it. All parties will sign this agreement to ensure that the borrower will deal with the finances alone after the specified period.
The limited guarantor will assist with a percentage of the loan, known as the penal sum.
In contrast, an unlimited guarantor on loan will offer financial support for the entire contract. They will be responsible for the entire amount that the individual borrows and needs to pay back.
A prime example of this would be a limited guarantor helping someone who owes money for medical services. The medical guarantor would offer financial help for a part of the loan. Whereas a mortgage guarantor typically acts on behalf of an individual for the entire loan.
Other Contexts for Guarantors
There are various rules for a loan guarantor. For example, not all of them require financial support and assistance for individuals. Some guarantors are required for individuals to attain a job or a mortgage. Additionally, some people ask for a guarantor so that there is a guarantee of payment should the individual not pay.
However, not all guarantors can help those who don’t earn enough or have a poor credit history. Sometimes they are required to sign a contract if an individual cannot afford to pay on time or in full.
Guarantors vs Co-signers
Although the role of a guarantor and a co-signer might sound similar, they are, in fact, quite different.
A guarantor service is for when the individual cannot pay in full or on time to fulfil their contractual agreement. For example, a guarantor for an apartment lease will step in when an individual cannot afford to pay the rent.
In contrast, a co-signer will sign a contract when an individual earns less than the required amount to attain the apartment. For example, some landlords might require a certain income for a tenant to lease the apartment. Therefore, a co-signer will step in to co-share the asset and act as a second party on the contract.
On the other hand, a guarantor will have no asset ownership. Instead, they will simply be there if the individual cannot afford to pay the bill.
Secondary Insurance
Another type of insurance to be aware of for financial support is secondary insurance. When your primary insurance company has fulfilled its requirement and attained its benefits, then a secondary insurance company will step in to pay the remaining balance of your claim.
Advantages and Disadvantages of Guarantors
There are some advantages and disadvantages borrowers need to be aware of when signing up for a guarantor.
The main advantage is that, with a guarantor, a borrower can obtain a loan much easier. For instance, if the borrower does not earn enough income, a guarantor will support the contract and fulfil the payments should the borrower not pay.
In addition, having two parties that will guarantee to pay back the borrowed money will heighten the amount you can borrow due to extra financial security.
However, should the guarantor miss the payment, your credit score and future attainment of guarantors will be hindered. Likewise, if you fail to pay them back, then they might become financially unstable, which could, in turn, hinder their own credit score.
Weighing up the pros and cons of a guarantor will ensure that a borrower and the guarantor make the right decision, which should align with what they can afford to pay and how quickly they will need to pay the loan back.
How Do You Qualify as a Guarantor?
Not everyone can be a guarantor; there are specific requirements that you need to meet to become a guarantor for someone else yourself. To qualify as a guarantor, you need to:
- Be at least 21 years old
- Have financial stability
- Have a good credit history
These requirements are not substantial to be a guarantor, but you will need to meet these three guidelines to qualify.
Knowing how much you need to earn to be a guarantor will differ depending on what service you are a guarantor for. For example, how much you need to earn to be a guarantor for medical bills might vary from a guarantor for a mortgage.
Typically, for a mortgage or rent agreement, the guarantor will need to earn three times the amount of the property’s annual mortgage/rent price.
How Do I Get Out of a Personal Guarantor Agreement?
Should you be looking to get out of a personal guarantor agreement, you need to know there is usually no easy way out. Instead, you can renegotiate the contract. In the worst case, you will need to go bankrupt to be withdrawn from a personal guarantor agreement.
If it is essential to be withdrawn from the agreement, some options include:
- Individual Voluntary Arrangement (IVA)– a formal binding agreement to state you will pay back over affordable monthly instalments. After the time is up, any remaining debt will be written off.
- Debt Management Plan (DMP)– similar to an IVA.
- Debt Relief Order (DRO)– this can only work if you owe less than a certain amount and you can only afford a set amount per month, which you will pay for a year. Then, the debt will be written off.
Debt solutions will differ depending on the types of loan, guarantor, and personal finances. However, it is not easy to get out of a personal guarantor contract.
In Conclusion
Knowing the answer to what an insurance guarantor is and how they work will help borrowers understand how to seek financial help and support for loans. In summary, an insurance guarantor is someone who can support a contractual agreement and offer comfort for both the borrower and the lender.
