Businesses in every industry depend on each other to fulfill their contractual obligations and deliver the results they promise. Without some sort of assurance, a business stands to lose a great deal of money when a company they hire fails to provide the level of service they promise or get a project finished on time. Indemnity bonds are a type of commercial insurance policy designed to insulate others from losses and create trust between you, your partners, and your clients.

What Is an Indemnity Bond?

Unlike traditional liability insurance, an indemnity bond reimburses another partner from any losses caused by your behavior. Indemnity bonds generally involve three different parties: the obligor, the business who purchases the bond as a guarantee; the principal, the one who is reimbursed if something goes wrong; and the guarantor, the bank or insurance company who actually provides the bond.

An indemnity bond may be required for businesses in certain industries, such as electricians or plumbers, or made a condition in your contract. Construction companies, for example, often have to purchase indemnity bonds to ensure their bids fulfill the needs of a project and subcontractors and other workers are paid. If they breach the contract, the principal may file a claim against their bond.

Unlike commercial insurance carriers, bond guarantors generally do not assume they will have to pay, so in many cases, they will investigate the situation and attempt to create a resolution acceptable to all parties. However, when this isn’t possible, they’ll compensate the principal for any losses and likely take collection action against the obligee to recoup their losses.

Since 1963, Zimmerman Insurance Agency has provided a comprehensive range of commercial insurance and bonding services to companies throughout the High Point, NC, area. As an independent agency, they maintain relationships with a wide range of top carriers in the nation, giving them a broad array of products and services to choose from. Visit their website for more on their commercial insurance services, call (336) 883-6512 to discuss your needs and request a quote, and follow their Facebook for more tips and coverage advice.