Indemnity Definition

Indemnity is defined as providing compensation to a party for a loss that has occurred or agreeing to compensate a party for a loss that may occur in the future

Surety bonds are sometimes referred to as indemnity bonds because of the role indemnity plays in surety bonding. Indemnity is usually set in place by some form of contract or written agreement. Surety bonds work with indemnity in exactly that manner. The principal, the party being bonded, is the indemnitor on the surety bond. This means that the principal him/herself is agreeing to compensate the surety for any potential financial losses the surety sustains from covering claims made on the principal's surety bond. When the principal on the surety bond is a business, it is common for the owners of the company to have to indemnify for the company to secure the necessary surety bond.