Insurance vs.

Suretyship

Differences
Insurance Suretyship
A contract whereby one, the insurer, A contract of suretyship is an agreement
undertakes to indemnify another, the whereby a party, called the surety,
insured, or pay or allow a specified amount
guarantees the performance by another
or a determinable benefit upon
party, called the principal or obligor, of an
determinable contingencies. obligation or undertaking in favor of
another party, called the obligee. Although
the contract of a surety is secondary only to
a valid principal obligation, the surety
becomes liable for the debt or duty of
another although it possesses no direct or
personal interest over the obligations nor
does it receive any benefit therefrom.
Principal contract in itself Accessory Contract
Contract of indemnity It is more of credit accommodation
No right of recovery except when the Surety is entitled to reimbursement from
insurer is entitled to subrogation principal and his guarantors for loss it may
suffer under the contract
May be cancelled unilaterally A bond can only be cancelled with the
consent of obligee or by Court of
competent jurisdiction
Does not need the acceptance of any third Requires acceptance of obligee before it
party becomes valid
Risk-shifting device Risk distributing device

Similarities

Section 2. A contract of suretyship shall be deemed to be an insurance contract,

within the meaning of this Code, only if made by a surety who or which, as such, is doing
an insurance business as hereinafter provided.
The term "doing an insurance business" or"transacting an insurance business", within
the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized
as constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code. In the application of the
provisions of this Code the fact that no profit is derived from the making of insurance
contracts, agreements or transactions or that no separate or direct consideration is
received therefor, shall not be deemed conclusive to show that the making thereof does
not constitute the doing or transacting of an insurance business.
 Insurance vs Lottery or Gambling

Differences
Insurance Lottery or Gambling
An insurance contract must have consent of There is consideration of price aid if it
the parties, object and cause or appears that the prizes offered by whatever
consideration. The parties who give their name they may be called came out of the
consent in this contract are the insurer and fund raised by the sale of chances among
insured.  The object of the contract is the the participants in order to win the prizes.
transferring or distributing of the risk of
loss, damage, liability or disability from the
insured to the insurer.  The cause or
consideration of the contract is the
premium which the insured pays the
insurer.
Insured seeks to avoid misfortune Gambler courts fortune

Parties seek to distribute possible loss by Parties contemplate gain through mere
reason of mischance chance

Tends to equalize fortune The contract tends to increase the

inequality of fortune
What one insured gains is not The essence is whatever one
at the expense of another insured. person wins from a wager is lost by other
waggering party
The purchase of insurance does not create a As soon as a party makes a wager, he
new and therefore no existing risk of creates a risk of loss to himself, where no
less to the purchaser such risk existed before

Similarities

In both cases, one party promises to pay a given sum to the other upon the
occurrence of a given future event, the promise being conditioned upon the payment of,
or agreement to pay, a stipulated amount by other party to contract. In either case, one
party may receive more than he paid or agreed to pay.