What Is an Insurance Guarantor?
Updated · May 20, 2022
There are different ways to define “guarantor” in finance and medical billing.
But the main idea is the same—that is the person responsible for the payments if the account owner defaults.
If you're considering being a guarantor or looking for one, you need to know more than that.
Read on for a detailed explanation of the different meanings and implications of guarantor agreements.
What Is an Insurance Guarantor?
An insurance guarantor is someone who agrees to pay the financial institution if the account owner defaults on their payments.
The guarantor can be a family member, friend, or financial institution.
If the policyholder fails to make their payments, the insurance company contacts the guarantor to collect the debt and future payments.
If the guarantor refuses to oblige, the insurance company may pursue legal action. As such, it is important to understand all the implications before agreeing to act as a guarantor.
The term is often used in finance about credit. We discuss that below.
But first, let’s see what a guarantor is in medical billing.
The guarantor of health insurance is the insured name or the party paying the bill. That is usually the patient.
That said, if the patient is a child or unable to cover their medical bill, the guarantor could be a different person.
In that case, the medical insurance guarantor has several responsibilities. These include paying the bill and accompanying the patient to the health care facility.
Types of Guarantors
Apart from the difference in the meaning of guarantor in medical billing and finance, there are a few other nuances to the term.
When an individual is applying for a job or a passport, they may need to confirm their identity and credibility.
In that case, the guarantor’s role is to certify that the person is who they claim to be.
A limited guarantor may back a loan only up to a certain time or amount (a penal sum).
After that, the borrower is responsible for the remaining payments. The guarantor won't be liable if they don't fail to pay.
An unlimited guarantor is responsible for the whole amount for the entire length of the contract.
You can come across those terms mostly about credit. Next, we discuss the meaning of guarantor and subscriber in the context of insurance.
Guarantor vs. Subscriber
The insurance subscriber and guarantor could be two different people.
The person who owns the insurance plan is the subscriber. They are usually the person using the service, too.
But if you’re covered under your spouse's insurance plan, for example?
Who is the subscriber for the insurance in that case?
That will be the spouse owning the plan, regardless of who’s paying for it.
The person paying the premium could be either the subscriber or the guarantor. Therefore, the terms are sometimes used interchangeably.
But there’s a difference.
In most cases, the guarantor is the person using and paying for the health insurance.
That said, if the patient is a child, for example, the guarantor will be paying the bill but not using the service.
In that case, the guarantor’s relationship to the patient is parent-child.
Guarantors vs. Co-Signers vs. Co-Borrowers
You can come across these terms most often when applying for credit or car insurance. They have similar meanings but with some key differences.
Co-borrowers, also known as co-applicants, are people who apply for some type of credit or insurance together. They share equal rights and responsibilities.
The lender takes into account the financial history of all parties involved. The co-borrows repay and use the loan, house, or car together.
So, what does guarantor mean?
Guarantors are not responsible for the payments unless the account owner defaults. They don't have any rights to the loan.
Having a guarantor can facilitate and speed up the application process. Otherwise, it doesn’t affect the terms greatly.
A co-signer is someone who signs a lease or a contract with the primary account holder.
They don’t make the monthly payments and can’t use the loan or insurance. Their financial history affects the terms of the loan or insurance.
This makes it a great option if the borrower can't qualify for good terms but doesn't want to share and repay the credit with another person.
Requirements for Being a Guarantor
To become a guarantor for insurance or a loan, you have to:
- Be at least 21 years old;
- Have a high credit score;
- Have the required income to cover the payments if the owner defaults.
Pros and Cons
There are plenty of benefits to having a guarantor:
- A guarantor can increase the likelihood of obtaining certification, a loan, or insurance.
- It facilitates and speeds up the approval process for credit or insurance.
- There’s someone to repay the debt if you default.
That is also what is the risk for the guarantor:
- They could end up repaying the debt.
- The owner's actions could hurt the guarantor's credit score.
- This could impact their ability to get a loan.
- A guarantor can't opt-out of the obligation.
A guarantor is a person who agrees to be responsible for the debt if the primary account holder cannot repay it.
Whether you are considering becoming a guarantor or looking for one, you need to understand what an insurance guarantor is and the implications of different types of guarantor agreements.
Read our guide above for everything you need to know about guarantors in the context of credit and insurance.
With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.