Financial Guarantee Bond (FGN)

Hamswood Insurance PTE LTD usually recommends our potential clients who intends to invest in a Start-up projects and companies that are already in operations, to consider the possibility of procuring Financial Guarantee Bond to provide all round coverages on known risks.

Financial Guarantee bonds are a category of surety bonds that ensure the principal (bonded party) will make payment to the obligee (usually a government agency). The term “financial guarantee” is used by surety underwriters to assign additional risk to surety bonds that contain some form of payment obligation. It is important to note; however, that surety bonds guaranteeing principal and interest payments on a loan are a separate category known as “financial guaranty”

There are two types of Financial Guarantee bonds:
1- Secured Financial Guarantee Bond (SFGB)
2- Unsecured Financial Guarantee Bond (UFGB)

Most financial guarantee bonds are government required and serve as a prerequisite for engaging in certain business practices. For example, businesses seeking to sell lottery tickets will need to purchase a Lottery Bond to ensure that all fees associated with the sale of lottery tickets are paid in full to the obligee.

Unlike most insurance products, surety bonds protect a third party known as an obligee. In the context of surety bonds with a financial guarantee, the obligee (individuals/entities who are due payment) is protected from late or missed payments. In addition, when the surety company suffers a loss due to the principal’s actions, the principal must repay to the surety company any losses and sometimes court costs and other fees.