Kshema Surety Bond Insurance
A Kshema product
Kshema Surety Bond Insurance is structured to safeguard business & project owners against losses arising from a contractor’s failure to comply with agreed contractual obligations, whether at the bidding phase or during project execution.
Kshema offers 4 types of Bonds
- Advance Payment Bond
- Bid Bond
- Performance Bond
- Retention Money Bond
Benefits of Kshema’s Surety Bond:
- Financial Protection
- Enhances Credibility
- Supports Regulatory Compliance
- Reduces Financial Exposure
- Maintains Liquidity
- Facilitates Business Growth
- Promotes Accountability
Why Choose Kshema General Insurance for Surety Bond Insurance?
Safeguards against contractual non‑performance
Smoother project execution
Enhances business credibility
How is Premium Calculated?
Premium depends on various factors such as financial health of the company, project tenure, contract value along with others factors such as age of the company and credit score.
Coverage
Kshema General Insurance Limited’s Surety Bond Insurance is structured to safeguard project owners against losses arising from a contractor’s failure to comply with agreed contractual obligations, whether at the bidding phase or during project execution. The product encompasses a range of bond types, including Bid Bonds, Advance Payment Bonds, Performance Bonds, and Retention Money Bonds, offering comprehensive risk mitigation across different stages of a project lifecycle.
Exclusions/What’s not covered?
- Contract termination between principal & beneficiary prior to insurance
- Changing terms of contract without the knowledge of the Surety insurer
- Gross Negligence, illegal /criminal acts by both principal & beneficiary
- War/Act of God/Nuclear Perils
- Fraud/Collusion
- Non-performance or non-fulfilment of terms /conditions of the contract
- Any third-party loss not part of the contract
- Any price fluctuation in execution of the project
Difference between Surety Bond and Bank Guarantee
| Aspect | Surety Insurance (Surety Bond) | Bank Guarantee |
| Nature of Instrument | Risk transfer and performance assurance tool | Financial security instrument |
| Parties Involved | Three parties: Principal (Contractor), Obligee (Project Owner), and Surety (Insurer) | Two primary parties: Applicant (Contractor) and Beneficiary (Project Owner) |
| Primary Purpose | Guarantees completion of contractual obligations | Guarantees payment of a specified amount |
| Focus of Evaluation | Surety evaluates contractor’s technical, financial, and performance capability | Bank primarily evaluates availability of collateral or credit limits |
| Interest in Project Performance | Surety has a direct interest in successful project completion | Bank has no active interest in project execution |
| Risk Assessment | Based on contractor’s ability to perform the contract | Based on collateral and financial security provided |
| Claim Settlement | Claim is paid after validating default and contractual breach | Typically, an on‑demand instrument; paid upon beneficiary’s request |
| Recovery Rights | Surety retains the right to recover paid claims from the contractor | Bank recovers payment through pledged collateral |
| Impact on Contractor’s Liquidity | Minimal impact on cash flow and working capital | Blocks cash or credit limits, affecting liquidity |
| Dispute Consideration | Claims are subject to investigation and contractual terms | Paid regardless of disputes between parties |
Frequently Asked Questions
Surety Insurance provides assurance to the project owner through a bond that the contractor will complete the project in accordance with agreed terms and conditions.
Kshema Surety Insurance acts as a risk transfer solution, protecting the project owner from potential losses if the contractor fails to meet contractual obligations.
There are three parties involved in Surety Insurance.
- Principal: A contractor who purchases a Surety Bond from an insurer as a guarantee and commits to fulfilling all contractual obligations.
- Obligee or Beneficiary: The project owner who requires the Surety Bond and is the ultimate beneficiary under the bond.
- Surety:The insurer, Kshema General Insurance Ltd., provides a guarantee to the Obligee/Beneficiary on behalf of the Principal, who is obligated to perform the contract as per agreed terms and conditions.
| Aspect | Surety Insurance (Surety Bond) | Bank Guarantee |
|---|---|---|
| Nature of Instrument | Risk transfer and performance assurance tool | Financial security instrument |
| Parties Involved | Three parties: Principal (Contractor), Obligee (Project Owner), and Surety (Insurer) | Two primary parties: Applicant (Contractor) and Beneficiary (Project Owner) |
| Primary Purpose | Guarantees completion of contractual obligations | Guarantees payment of a specified amount |
| Focus of Evaluation | Surety evaluates contractor’s technical, financial, and performance capability | Bank evaluates availability of collateral or credit limits |
| Interest in Project Performance | Surety has a direct interest in successful project completion. | Bank has no active interest in project execution |
| Risk Assessment | Based on contractor’s ability to perform the contract | Based on collateral and financial security provided |
| Claim Settlement | Claim is paid after validating default and contractual breach | Typically an on-demand instrument; paid upon beneficiary’s request |
| Recovery Rights | Surety retains the right to recover paid claims from the contractor | Bank recovers payment through pledged collateral |
| Impact on Contractor’s Liquidity | Minimal impact on cash flow and working capital | Blocks cash or credit limits, affecting liquidity |
| Dispute Consideration | Claims are subject to investigation and contractual terms | Paid regardless of disputes between parties |
Kshema provides Surety Bonds to construction and infrastructure (EPC) contractors,
guaranteeing their future project performance to the awarding entity (Obligee).
Only licensed surety companies or authorized insurers are permitted to issue surety bonds, after evaluating the Principal’s financial strength and credibility to ensure their ability to fulfill contractual obligations.
- Unconditional Surety Bond: Payable on demand like Bank Guarantee
- Conditional Surety Bond: Obligation is triggered only after a default is formally established and investigated.Protect the Principal from wrongful calls while ensuring legitimate claims are paid.
The Surety Bond structure and the entire arrangement is found in Sec.126 of the Indian Contract Act 1872 which defines a “Contract of Guarantee” as a promise to discharge liability of a third person in case of the default by the Principal.The person who gives the guarantee is called “Surety”.
The person in respect of whose default the guarantee is given is called the “Principal Debtor” and the person to whom the guarantee is given is called the “Creditor”.
The policy tenure will be typically aligned to the tenure of the project and contract.
No, a Surety Bond is nonrefundable. The premium paid is a one time charge that is
retained by the Surety once the bond is issued, even if the contract is terminated early or the bond is no longer required, as it covers underwriting and risk assessment costs.
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- Coverage for personal accidents and hospital cash benefits.
- Premiums calculated based on individual preferences and optional covers.
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