What Are Indemnity Bonds?

Indemnity bonds are a major type of surety bonds. Their purpose is to guarantee financial reimbursement for any harm caused by illegal actions committed by the bonded party.

The bond works as a contract between three entities. The principal -- you or your business -- is legally required to obtain a bond. The obligee is the party imposing the bonding, which often is a state or local authority. The surety provides you with the bond and backs it.

In essence, the indemnity bond can indemnify the obligee in case you as the principal don’t perform your legal obligations as per the terms of the bond.

To get an indemnity bond, you’ll have to sign an indemnity agreement with the surety. It states that if a bond claim arises, you’ll carry the full financial responsibility -- rather than the surety company that has bonded you.

Why Do You Need an Indemnity Bond?

You may have to obtain an indemnity bond in a variety of situations.

Some of the common indemnity bonds you may need are commercial bonds. They guarantee the correct execution of commercial contracts.

Commercial bonds are also known as license and permit bonds because they are a common requirement for getting a professional license. Local, state and federal authorities may require you to get a license bond before they provide you with a license.

Here are the most popular commercial bonds you may need:

  • If you’re a car dealer, you’re likely to have to post an auto dealer bond. State authorities require it to ensure car buyers have an extra layer of protection against fraud and misuse.
  • If you’re a contractor, you may need to get a contractor license bond to obtain your local or state licensing. This bond protects commercial clients and homeowners from contractors’ default and fraud.
  • If you’re a mortgage broker, you’ll need to post a mortgage broker bond to get a state license. The bond acts as a safety net for your customers, protecting them against potential fraudulent activities.

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You may need an indemnity bond in other situations where contracts are involved, such as:

  • Leases
  • Loans
  • Licensing agreements
  • Supply contracts

Whatever the exact case is, the indemnity bond guarantees you will fulfill your obligations under a legally-binding agreement. If you fail to do so, harmed parties can seek reimbursement for financial losses via a bond claim. The maximum compensation they can demand is up to the bond amount you’ve posted.

What Does an Indemnity Bond Cost?

The price of your indemnity bond depends on the bond amount you’re required to get and on your financial situation.

To get bonded, you’ll have to pay a bond premium. It is a small fraction of the bond amount. If your finances are in good shape, you can get bond rates in the range of 1% and 5%.

When you apply with a surety, it examines your personal credit score, business financials, and any fixed and liquid assets you may have. This is how it determines the risks involved in the bonding -- or how capable you are to pay any bond claims if they arise. On the basis of this assessment, the surety sets your surety bond cost.

It’s more difficult to get bonded if you have bad credit. However, there are still options -- like our Bad Credit Surety Bonds program. The bond premiums are typically slightly higher, between 5% and 10%. Still, that’s a great opportunity to get bonded and progress with your business.

How to Get an Indemnity Bond?

Getting an indemnity bond is not complicated. You can apply online for a free quote straight away.

You can get approved online and just print your bond after purchasing it on our website.

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