Also known as: indemnity bond meaning · what is an indemnity bond · indemnity bond vs surety bond
A surety bond that guarantees one party will be reimbursed for a loss if the party who bought the bond fails to meet an obligation.
An indemnity bond is a type of surety bond in which a surety guarantees that a specified party (the obligee) will be reimbursed if the party buying the bond (the principal) fails to perform an obligation or causes a covered loss. It is a three-party arrangement: the principal signs an indemnity agreement promising to pay the surety back for anything the surety pays out, so the bond is a financial guarantee, not first-party insurance for the principal. Startups run into indemnity bonds when replacing a lost stock certificate or check, and defense and government contractors post them alongside bid, performance, and payment bonds to satisfy procurement requirements.
An indemnity bond is a surety bond in which a surety company guarantees that a protected party (the obligee) will be made whole if the party who bought the bond (the principal) does not perform or causes a loss. If the surety pays a claim, the principal must reimburse the surety under a signed indemnity agreement. It is a financial guarantee, not liability insurance for the principal.
No. With insurance, the carrier absorbs the covered loss. With an indemnity bond, the surety pays the obligee first and then recovers that amount from the principal, so the principal ultimately bears the loss. The bond mainly protects the obligee, not the party who purchased it.
Common triggers include replacing a lost, stolen, or destroyed stock certificate or check, satisfying a court or licensing requirement, and bidding on government or prime-contractor work that requires bid, performance, or payment bonds. Your broker can tell you which type of bond a specific contract or agency requires.
Definitions are educational and may be modified by your specific policy language, endorsements, and state rules. For regulatory guidance, refer to the California Department of Insurance or the NAIC.
Last updated: July 2026.