Surety Bond Indemnity Agreement [Why does my spouse need to sign?]

When applying for a Surety Bond, you might be asked to sign one or more indemnity agreements. If the surety company is requiring signed indemnity, they will need your signature, as the business owner, and the signatures of any other owners.

What may come as a surprise is spousal indemnity is also a surety requirement.

But, if your spouse has nothing to do with your business, why is the surety requesting his or her information and signature to receive the bond?

Spousal Indemnity Agreement
The surety may require a signed spousal indemnity agreement prior to issuing a bond.

Let’s begin with outlining the purpose of the bond.

The definition of a Surety Bond

A common misconception about Surety Bonds is the policy serves to protect you, the business owner. However, this is not the case as the bond does not serve the same purpose as traditional insurance policies.

Think of this type of policy as a mixture of a line-of-credit and insurance.

The Surety Bond you are securing is a three-party contact between the principal, obligee and surety.

The Principal – You, the business owner, fill this role.

The Obligee – The entity requiring you to secure the bond. Typically, this is a state or federal department.

The Surety – The company that issues your bond.

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I have been working with Steve Shike and he has been so helpful. I purchased the wrong bond and Steve instantly requested a refund on my behalf and called back with the good news. I appreciate him for helping me figure out my situation in such a timely matter. Thank you Steve for responding to my calls and emails promptly.
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Katrina and Surety Solutions was awesome to work with and made the process seamless. Even after I, PERSONALLY, made a mistake and caused a delay, Katrina was able to spot my mistake and kindly address the error while still delivering my bond as if nothing had happened.I have nothing but good things to say about Surety Solutions.
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Katrina and Surety Solutions were very helpful and fast. I needed to change the bond I ordered and they handled that within minutes. Their response time to emails and request were great and that is why I will continue to work them both. All I ask for is relatively decent response time when there are issues that need resolved and Katrina far exceeded that and was friendly on top of everything else. Well done.Kris
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Surety Solutions has been the most amazing and easiest company to work with on Bonds in my past 17 years of doing insurance. They are very quick to respond and very personal to work with. Jake Durrant is absolutely the best!
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22:43 08 Jan 21
I bought a surety bond for my business. The name on the application has my middle name on it and the policy didn't. That would or could have created a problem. I wrote to customer service to complain. Well not complain but ask for it to be changed. Since it was Thanksgiving weekend I wasn't expecting to hear back till this week sometime. Well to my surprise it was "Very" Quickly. JD was very helpful and professional. Fixed it then contacted me with the corrected version. Couldn't be happier. " Good Business is Good Business"
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If you, as the principal of the bond, perform your duties unethically or fail to fulfill your obligations, a claim can be made against your bond.

The surety company will perform an investigation to determine the validity of the claim. A payout of up to the full bond amount is made on claims found to be valid. As principal of the bond, repaying the surety back in full is your responsibility.

What is an Indemnity Agreement?

The surety is taking on a great deal of risk when issuing a Surety Bond. Having the principal sign an indemnity agreement is standard practice for surety companies to transfer that risk to the principal.

The language in the indemnity agreement will vary between surety companies, but you’ll find the terms are mostly the same.

If a payout on a valid claim needs to be made, the surety will pay the cost of the claim with the expectation the principal will reimburse them in full.

The purpose of the indemnity agreement is to ensure the surety company receives its reimbursement from the principal.

Whose signatures are needed for the Indemnity Agreement?

The three types of indemnity agreements are corporate, personal and spousal.

Corporate Indemnity – The principal signs on behalf of the company.

Personal Indemnity – The principal and all other business owners (with 10%+ ownership of the company) must sign a personal indemnity agreement.

Spousal Indemnity – Additionally, the principal and business owners’ spouses must sign indemnity agreements.

Indemnity Agreement Signature
You may need to sign an indemnity agreement before getting your Surety Bond quote.

Prior to receiving your bond, the surety must collect individual signatures from all business owners with 10% or more ownership in the business. These signatures are in addition to the indemnity agreement signature for the company as a whole.

Business owners who are married must also have their spouse sign an indemnity agreement.

This requirement is sometimes met with resistance from the principal.

If your spouse doesn’t have any involvement with the business, why does he or she need to sign an indemnity agreement for you to receive your bond?

Simply put, the surety requires your spouse’s indemnity signature to ensure you don’t move assets over to him or her if they have to collect from you due to a payout on a claim.

There is a large amount of risk attached to the bond. So, by not willing to provide an indemnity agreement signed by your spouse, the surety will likely not approve the bond request.

No spousal indemnity agreement = No Surety Bond quote

Who is responsible for paying the surety back?

The surety performs a thorough investigation on any claims made against the bond. Any valid claims result in a payout from the surety up to the whole bond amount.

As the principal, it is your duty to make the surety financially whole, again. This responsibility falls on everyone who signed an indemnity agreement for the bond.

Does every bond require an indemnity agreement?

No, an indemnity agreement is not always required to purchase a bond. This requirement typically depends on the amount of risk associated with the policy.

If the bond amount is relatively small and/or there is little chance of a claim, the surety may issue the bond instantly without a credit check. An instant issue bond that doesn’t require underwriting will not need an indemnity agreement.

How to get around spousal indemnity

When a spousal indemnity signature is required to get your Surety Bond, there isn’t another option to get the bond. However, you might be able to get a Letter of Credit in lieu of your Surety Bond requirement.

Spousal Indemnity may be required for a Surety Bond quote
If spousal indemnity is required, your spouse must sign and submit the agreement before you can get your bond quote.

Most lending institutions issue Letter of Credits, but require 100% cash collateral. Choosing this option means you miss out on the benefit the Surety Bond provides of not having your funds tied up in an account you can’t access.

There is no getting around submitting the signed spousal indemnity agreement to secure your Surety Bond.

Conclusion: Your spouse must sign the indemnity agreement

Your spouse may not have anything to do with your company, but it’s all too easy to move assets and funds to your spouse to avoid reimbursing the surety for a claim payout.

The surety is taking on a great deal of risk when issuing a bond. Requiring signed indemnity agreements transfers this risk over to you, the principal.

This agreement grants you the ability to buy your Surety Bond, so you don’t have to front 100% of the necessary funds as collateral.

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Beau Chipman
Beau Chipman

Beau is the Marketing Content Developer at Surety Solutions, A Gallagher Company. He creates content about all types of surety bonds, including mortgage, court, lost title, contractor, fidelity, ERISA and many more.

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