What does indemnity mean in Insurance terms?

Now this is a good question. To indemnify means you agree to pay some one back for a loss incurred that you are responsible for or may not be responsible for. For example if you are a contractor that is required to post a contract performance bond, you must obtain the bond from an insurance carrier that will agree to provide the bond. In the agreement with the bonding company you must agree to indemnify the bonding company losses that occur. Should you fail to complete the job a bond can be called in and be required to finish or pay for someone else to complete the job. the bonding company is required to furnish the money under the contact for your default. Because you agreed to indemnify the bonding company you are required to repay them for for the default. These type of bonds are financial backed by you and all you assets. they will not provide the bond until you have disclosed all assets and often will require cash collateral to help back the bond. IF you are married they normally require the spouse to also sign the indemnity agreement. Be careful with these type of transactions.

Also when you sign a written agreement in a contract they often contain an indemnity clause that requires you to hold them harmless and indemnity them for losses they incur due to your operation. These are normally backed by an insurance policy and if it is determined that it is an insured contract the carrier will make payment in you behalf with you not having to repay them. Keep in mind you can agree in an indemnity agreement to indemnity someone else for items that are not covered as an insured contract. in that case you will be required to pay for the loss yourself.

This is a very very complex subject and is subject of massive case law. If you are considering a contract with these type of agreements you should seek legal advice from an attorney.

LAST Word Be very careful about these and fully understand what you are signing