Indemnity bonds are required for certain jobs, industries, and circumstances. They give the issuer confidence that if the individual they hire doesn’t fulfill their contract or obligation (for example, they don’t show up to work as agreed), they have financial support and can continue meeting their obligations. This support comes from an indemnity bond. These types of contracts are legally known as surety bonds or liability insurance policies. An indemnity bond is a type of liability insurance offered by another party as protection against loss or damages that result from activities performed by the policyholder. In other words, an indemnity bond ensures that you won’t be held liable for something you didn’t do (or something you did do but shouldn’t have).
What Does an Indemnity Bond Cost?
The cost of a surety bond is determined by a few factors:
– The type of work the individual will be doing. The more dangerous the work, the higher the price.
– The amount of liability the individual will have, which is based on the risk the individual poses to a business or the public. The riskier the job, the higher the price.
– The location where the individual will be working. The more expensive the state, the higher the price.
– The company’s reputation and history. This factor also determines how soon you can get the bond (read on for more details).
– How long the individual will need the bond? How long the bond stays active is determined by the risk factor of the job, the location, and the company history.
The exact price of the bond, however, is contingent upon several variables and can vary from state to state and from company to company.
Understanding Indemnity Bonds
Indemnity bonds are simply surety bonds that cover acts of negligence or breach of contract by an individual or company. They are used when one party, the principal, outsources a service or product to another party, the contractor. As a third party, the surety company is then responsible for making the principal whole if the contractor fails to uphold the contract. There are three types of indemnity bonds:
– Contractor Bonds – Contractor bonds are most commonly used in the construction industry when a contractor is hired to build a building or perform repairs on a property.
– Performance Bonds – Performance bonds are used when a contractor is hired to provide a service such as cleaning or landscaping.
– Completion Bonds – Completion bonds are used when a contractor is hired to finish a project that was not completed by another contractor.
Why Are Indemnity Bonds Required?
Contractors and other individuals or businesses that enter into contracts with others or provide goods and services on a promise to deliver at a given time and at a certain price will often find themselves with no way of protecting themselves against the failure of those with whom they contracted. For example, contractors who agree to build a house for a homeowner may be tempted to cut a few corners to meet their deadline if they aren’t properly bonded. If they don’t deliver the product as promised, the homeowner is left out in the cold.
Key Points to Remember
– An indemnity bond is a type of liability insurance offered by another party as protection against loss or damages that result from activities performed by the policyholder.
– The cost of a surety bond is determined by a few factors, including the type of work the individual will be doing, the amount of liability the individual will have, and the reputation and history of the company providing the bond.
– Contractors and other individuals or businesses that enter into contracts with others or provide goods and services on a promise to deliver at a given time and at a certain price will often find themselves with no way of protecting themselves against the failure of those with whom they contracted.
Conclusion
Indemnity bonds ensure that contractors who fail to deliver on promises can be held accountable. If a contractor is not bonded, homeowners are left with a choice: take legal action against the contractor or accept whatever they deliver. If you are engaged in any type of work that requires a surety bond, it’s important to make sure you understand the requirements of the type of work you’re doing. The last thing you want is to complete the work only to find out you don’t qualify for the bond because you don’t meet the requirements. Working with a trusted and reputable surety company can help make sure you get the coverage you need and help you navigate the application process to make the whole thing as simple as possible.