Types of Indemnity Bonds

Indemnity bonds are surety bonds used by governments, businesses and individuals to establish assurance that an agreement will be fulfilled as stated. The indemnity bond outlines a pledge to compensate, financially or otherwise, one party if the second party fails to fulfill a contract or obligation. Different types of indemnity bonds are offered by a surety for a variety of business situations.

Bid Bond

Projects acquired through a bidding process require a company to review project requirements, determine cost and figure a total bid price. Typically, the company with the lowest bid price is awarded the contract. A bid bond is used to assure the project owner that the bidder intends to follow through as outlined in its bid. The bond also assures that the bidder will also provide any other bond purchases, such as obtaining a performance bond and a payment bond.

Performance and Payment

Performance bonds are obtained as part of a contract between a project owner and a company doing work for the project owner. A performance bond protects the owner financially if the contractor fails to complete the project as outlined. Payment bonds guarantee that the contractor will pay subcontractors, material suppliers and laborers hired in association with a contract.

Permits and Licenses

Individuals who open businesses may be required by state or local law to obtain a permit or license to operate. Each type of permit or license outlines provisions that a holder must qualify for before obtaining the license. Permit and license indemnity bonds assure the company's customers that the business meets all requirements connected with the license or permit. For instance, a plumber or electrician is usually required to complete training in that field before qualifying as a licensed tradesman. The license bond is a means to qualify that training.

Miscellaneous

Miscellaneous indemnity bonds are designed to cover items not found in or defined in a general contract. A miscellaneous bond is usually very specific and might include protection from lost securities; a guarantee to pay utility bills or to provide a certain service; or to guarantee a specific benefit for employees, such as employer contributions for union benefits, or workers' compensation for self-insured employees. This bond might be required by law, or private parties might use it to facilitate a business transaction.

About the Author

Alex Burke holds a degree in environmental design and a Master of Arts in information management. She's worked as a licensed interior designer, artist, database administrator and nightclub manager. A perpetual student, Burke writes Web content on a variety of topics, including art, interior design, database design, culture, health and business.

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