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An indemnity agreement provides protection against loss, commonly required in high-risk activities like skydiving and bungee jumping to shield businesses from liability. In the context of surety, it is a signed document between a principal and a surety, stipulating that the principal will indemnify the surety if a claim arises. Indemnification is the process of compensating for a loss; for instance, if the surety pays $20,000 on a claim, the principal must repay that amount. Typically, all business owners sign an indemnity agreement, and depending on the situation, it may also involve spousal indemnity or a third-party witness for signatures.
