The contractual agreement arising from an indemnity is made between two parties, that is the indemnifier and the person who receives the indemnity. For example, a life insurance policy is an indemnity between the insurance company and the person buying the policy. A guarantee agreement involves three parties these are: the guarantor, the principal debtor and the principal creditor. For example in taking a student loan, a cosigner promises to pay the debt to the lender if the student defaults on the loan.
The nature of obligations in a guarantee agreement is different from that of an indemnity. In an indemnity the indemnifier has an obligation to protect the receiver of the indemnity from loss. In the event of a loss, then the indemnifier will compensate the receiver or principle creditor accordingly. A guarantee agreement obligates a guarantor to pay a certain debt or perform a service on behalf of a principal debtor if the debtor fails to meet his obligations to the creditor.
A guarantee agreement comes secondary to previous obligations agreed upon between the principle creditor and the principle debtor. The guarantee agreement becomes a subsidiary agreement rather than the principle agreement between the parties involved. In an indemnity the contractual liability is primary and does not require the existence of a previous agreement between the two parties. The agreement is independent of any other contracts and obligations.
Unlike a guarantee agreement, an indemnity brings the indemnifier and the principal creditor on the same level. There is a one-on-one interaction between these parties and the liability is concurrent, meaning it is equally shared. A guarantee agreement places more emphasis on the guarantor-principal creditor relationship and the primary debtor does not necessarily carry equal liability.