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An indemnity agreement provides protection against loss and is commonly associated with high-risk activities, such as 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, stating that the principal will indemnify the surety in case of a claim. Indemnification refers to the process of restoring the surety financially, for instance, if a surety pays a claim of $20,000, the principal must repay that amount. Generally, business owners must sign an indemnity agreement, and in some cases, additional requirements such as spousal indemnity or a third-party witness may apply.
