What Is An Insurance Guarantor? (Easy Definition)

There are times in people’s lives when they are unable to pay their bills, for example when someone is very sick in the hospital not making money or they have lost their job and have no money to pay their bills. This is when an insurance guarantor would come in. An insurance guarantor is like a co-signer, meaning the insurance guarantor will be responsible for covering the person who didn’t or can’t pay their bills.

Who Needs An Insurance Guarantor?

There are a few different instances when someone might need to get an insurance guarantor. Here are some examples so you know if you might require an insurance guarantor:

1. You have a bad credit score

Your credit score is one of the first things lenders look at when they are considering giving you a loan. Landlords will also look at your credit score to help determine if they can trust you to pay your rent on time.

If you have a history of late payments, or high amounts of debt that have brought your credit score down to a level that doesn’t meet satisfactory requirements, then lenders and landlord may require that you get an insurance guarantor.

2. You have don’t have much credit history

If you are a young adult who hasn’t had any bills to pay until this point, then you probably don’t have enough credit history for lenders and landlords to trust that you’ll pay your bills. In this case the lender or landlord will likely ask for you get an insurance guarantor so they can be assured that they will get payments owed.

3. You are not a permanent resident

As an international student or a temporary resident, you might not have enough credit built up in the USA in order qualify for a loan or rental. Even if you have a long history of credit in your home country, since every country has their own system it will not transfer over to USA. An insurance guarantor will be required under these circumstances.

4. You have low or inconsistent income

If your income is low and you are only making enough to get by, or you are a freelancer or contract worker who doesn’t make a consistent income then lenders and landlords may require you have an insurance guarantor.

Who Should Be Your Insurance Guarantor?

The person you choose to be your insurance guarantor must be someone that is trustworthy and has a good credit history. People can be very cautious about becoming a guarantor because in the end no one wants to be responsible for someone else’s bills. The guarantor needs to trust you and believe that you will take care of your own bills and that they will only be needed in case of an emergency.

When searching for an insurance guarantor, you need to find someone who is at least 21 years old and has a long healthy credit score. You should also know this person well to make sure there is equal amounts of trust on both sides.

If you cannot find someone to be a guarantor for you, then there are also companies out there that offer guarantor insurance.

What You Should Know If You Are Asked To Be An Insurance Guarantor

It’s normal to feel hesitant when you are asked to be an insurance guarantor. You could end up being fully responsible for someone else’s bills on top of your own! There are some things you should know before agreeing to be a guarantor.

The most important thing to know about being an insurance guarantor is that once you agree and papers are signed for the loan, there is no turning back. You will not be able to quit being a guarantor until the loan is all paid back.

As a guarantor you do have some rights and protection. You should make sure to go over these details with a lawyer before anything is set in stone. You can protect yourself by only agreeing to pay for a specific amount and no extras. You can also agree to pay for only a certain amount of time.

Another important thing to know about being an insurance guarantor is that it can have an effect on your credit score. The loan and payments will show up on the guarantor’s credit report as if it were their own because the guarantor is responsible for making sure it’s paid. If the person borrowing the money doesn’t pay on time, then it will affect the guarantor’s credit score. This is why it’s important to only be a guarantor for someone who you have close communication with, so you can make sure all payments are made on time.

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What Happens If The Guarantor Does Not Pay The Debt?

When someone agrees to be a guarantor, they are entering a legally binding contract agreement to take responsibility of the loan or debt if the borrower or renter does not take care of it themselves. The guarantor can get themselves in some trouble if they refuse to pay the liabilities after agreeing to.

If the guarantor does not pay after the borrower hasn’t paid, then first of all, as mentioned before, the guarantor will take a negative hit to their credit score. Having a negative hit on your credit score can sometimes be hard to recover from and can affect your future financial decision making and options.

The lender can send the account that the guarantor is on to collections if the account is in default. Once sent to collections the guarantor will be consistently contacted by the collections company asking for payment, this will also show up on the guarantor’s credit report.

Another thing that could happen if the guarantor does not pay the debt, is that the lender or landlord could take legal action and sue the guarantor to get the money they are owed. If the guarantor loses the law suit, they will be legally obligated to pay and the debt will go on their credit report.

Keep in mind that most of these unpaid debts do grow interest and fees the longer they are left unpaid. So the longer that guarantor refuses the pay the debts, the more they will end up needing to pay in the end.