Letter of indemnity

Letter of indemnity,

Definition of Letter of indemnity:

  1. A letter of indemnity (LOI) is a contractual document that guarantees certain provisions will be met, between two parties. Such letters are traditionally drafted by third-party institutions like banks or insurance companies, which agree to pay financial restitution to one of the parties, should the other party fail to live up to its obligations. In other words, the chief function of an LOI is to ensure that Party A won't ultimately suffer any losses if Party B falls delinquent. The concept of indemnity has to do with holding someone harmless, and a letter of indemnity outlines the specific measures that will be used to hold a party harmless.

  2. A letter of indemnity states that any damages caused by the first party to the second party, or to the second party's belongings, are the responsibility of and are facilitated by the third party, as per the contractual agreement. In that sense, LOIs, which are often referred to as "indemnity bonds" or "bonds of indemnity," are similar to insurance policies.

  3. A written undertaking by a third party (such as a bank or insurance company), on behalf of one of the parties (the first party) to a transaction or contract, to cover the other party (the second party) against specific loss or damage arising out the action (or a failure to act) of the first party. Also called indemnity bond, bond of indemnity.

Meaning of Letter of indemnity & Letter of indemnity Definition