Insurance Regulatory and Development Authority of India (IRDAI) has provided a framework for a new product by which small suppliers and work contractors can get surety of payment without pledging any collateral. So, instead of reaching a bank, you can get financial security with this new product of IRDAI. Read this page and know more about this new product.
Types Securities Offered by the IRDAI
You can choose from any of the following securities –
- Advance payment bond
- Bid bond
- Contract bond
- Customs and court bond
- Performance bond
- Retention money
The IRDAI is yet to approve these products though.
These bonds, introduced as a substitute to bank guarantees, will help reduce the indirect cost for suppliers and work contractors. And it will also be useful for gold imports.
How Can These Bonds be Beneficial?
Small entrepreneurs don’t have the luxury to provide collateral to the banks to get the payment surety. So, to help those in need, IRDAI provides this bond where no collateral is needed. But it could be a little more expensive than the bank guarantee.
Which Insurance Companies are Going to Offer These Bonds?
Insurance companies whose solvency margin is not less than 1.25X the control level of solvency as specified by the IRDAI will be eligible to provide you with this new product. If the solvency margin is below the specified limit at any point, the company will stop underwriting the new surety insurance business until its solvency margin is restored to above the limit.
What Premium is Charged for the Surety Insurance?
The premium amount to be charged for all the surety insurance shall not be more than 10% of the gross premium of that year, subject to a maximum of INR 500 Crore. And the insurance company works with banks or NBFCs to share the risk amongst these.
Separately, there’s a proposal for the payment of annuity and lump sum for differently-abled dependents during the lifetime of parents or guardians when the age is more than 60 years. ‘There could be situations where differently-abled dependents may need payment of annuity or lump sum amount even during the lifetime of their parents/guardians, said the Finance Minister, while announcing the Union Budget 2022-23.