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Overview of Indemnity Bonds

This is an umbrella term for all surety bonds that are conditioned upon the compliance of a bonded party with the terms of contract or with a set of obligations described in state or federal law.

These bonds are generally required of businesses when they apply for a business license or when they enter into some form of contractual obligations with another party.

Examples of indemnity surety bonds are most license and permit bonds, also known as commercial bonds. Auto dealers, construction contractors, mortgage and real estate brokers, travel agents and others often require such a bond in order to get licensed.

If a bonded party does not comply with the conditions of the bond or violates its legal and/or contractual obligations, a claim can be filed against their bond. Such a claim is intended to reimburse those parties who suffer losses or damages as a result of such a violation.

Compensation under a surety bond claim can be as high as the full amount of the bond - the so-called penal sum.

See our ‘What is a surety bond’ guide for detailed information on how bonds work and why they are required!

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The sections below will provide you with examples of popular types of bonds in this category, an explanation about the difference between these and other bonds, how much your bond might cost, and what may give rise to a bond claim.

Call our experts at (866)-450-3412 if you have any bond-related questions you’d like to have answered!

These are some of the most popular bonds within this category:

Auto dealer bond

The majority of states require auto dealers to get bonded when applying for a license to guarantee their compliance with state law and best business practices.

Contractor license bond

To be able to bid and perform on projects, contractors in most states must first get licensed and bonded.

Insurance broker bond

Insurance brokers must typically get bonded to guarantee they will account for any premiums they collect and that they will not mislead or manipulate clients.

Mortgage broker bond

Like insurance brokers, mortgage brokers often require such a bond in order to get licensed. The bond guarantees they conduct the business of brokering mortgages in an honest and faithful way.

Performance bond

Contractors who work on bigger projects are typically required to obtain this type of bond in order to guarantee for their performance of the contract they have entered into with the project owner.

Telemarketing bond

These bonds are put in place to guarantee that telemarketers comply with the regulations for telemarketing in every state they do business in, and to protect the public from fraud and dishonesty.

Difference with Other Types of Bonds

The only significant difference between these bonds and other bonds, such as financial guarantee bonds, is that the former are conditioned on the execution of mostly non-financial obligations, whereas the latter are required for businesses who have financial obligations that require some form of guarantee.

In other words, the basis of the bond agreement for indemnity bonds is to provide compensation for instances in which the actions of the bonded party lead to losses or damages for another party - the public or the state.

For example, if a contractor does not perform according to contract by either delaying a project or defaulting on the contract altogether, their performance bond will serve as a financial guarantee that losses borne by the project owner as a result of such actions will be covered.

Like all bonds, bonds in this category are conditioned upon specific obligations on the side of the bonded party. For some bonds, limitations may apply as to the period within which a claim can be made against the bond.

Cost of Your Bond

Surety bond cost is a percentage of the total amount of any given bond. This percentage is determined by sureties when you apply for a bond. The surety primarily examines your credit score, along with other personal financial indicators such as your financial statements, and more. Depending on how high or low your score is, you are offered a rate on your bond at which you can obtain it.

Surety bond amounts vary from bond type to bond type, and from state to state. For example, auto dealers in Colorado must obtain a $50,000 bond, while dealers in Wyoming require a $25,000 bond. The cost of getting either of these bonds will be a fraction of the full amount. For applicants with very or relatively high credit scores, the cost of getting bonded is typically between 1% and 5% of the amount.

We offer free quotes on all our bonds with no additional obligations attached! Submit a surety bond application, and we will contact you shortly with a precise quote on your bond.

If you want to know more about a particular bond or the bonding requirements in your state, give us a call at (866)-450-3412!

Not ready to apply? Then simply get a free no-obligations quote, so you can see our low prices!


About the author:
Todd Bryant
Todd Bryant is a graduate of Germantown Academy and the University of Pittsburgh College of Business Administration Honors College. He has been President of Bryant Surety Bonds, Inc., an A+ rated Business with the Better Business Bureau, since 2007. Licensed as a producer with the Department of Insurance, he has been published in the National Association of Surety Bond Producers newsletter and on numerous authoritative publications such as The Washington Post, Entrepreneur.com, Azcentral.com and many more.

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