Introduction to Letter of Indemnity
A letter of indemnity (or an LOI), which is a contract document ensuring specific terms are met between parties, is usually drafted by a third party, such as banks or insurers. The promise for compensation in case one of the parties fails to meet the terms of the contract ensures no loss. It aims to make sure that both parties will be responsible and obligated in meeting their commitments.
Understanding Letter of Indemnity
A letter of indemnity is a statement that if Party A causes losses to Party B, then Party A will bear the responsibility and compensate Party B for those losses. This concept is similar to insurance policies, where one party covers the costs incurred due to the other's failure to meet contract terms. LOIs are used in various business transactions.
Parts of LOI
An LOI details the parties involved, with full legal names and addresses for both parties, as well as the name and affiliation of the third party. It outlines the terms and goals of the agreement. The document ends with the signatures of both parties and the date of execution.
