Indemnity Agreement

What Does Indemnity Agreement Mean?

An indemnity agreement is a legally binding contract in which one party agrees to cover certain losses incurred by another party, provided those losses occur under specified circumstances. Insurance contracts are a common example of indemnity agreements. For instance, car indemnity insurance follows this structure, with the insurer paying covered losses up to the limits set in the policy.

Insuranceopedia Explains Indemnity Agreement

Insurance companies enter into indemnity contracts because the other party (the policyholder) agrees to make payments (premiums) as a condition of the contract. In general, the more extensive the coverage the insurance company agrees to provide, the higher the premiums the policyholder must pay. The same logic explains how business insurance premiums are calculated based on the size of the risk the insurer agrees to cover.

Since indemnity agreements are legally binding, insurance companies have a legally enforceable obligation to provide coverage according to the terms specified in the contract.