A certificate of insurance (COI) is issued to small business owners to show proof of insurance. It is a simple form issued by an insurance company or broker and includes:
- The types of coverage;
- The issuing insurance company;
- A policy number;
- Names of the insured;
- Policy dates;
- And the limits and deductibles of the plan.
General contractors handle many projects that could cause significant losses if an accident were to happen. These accidents can be costly for both the contractor and the client — the contractor could suffer blows to reputation while the client is left with an unfinished project. Typically, a contractor obtains general liability insurance to protect both the client and the contractor if an accident were to occur during the project.
General liability insurance can help mitigate the costs of accidents caused by employees or subcontractors. A certificate of liability insurance can be used as proof of insurance coverage if you work with other companies or hire subcontractors.
Importance of a Certificate of Insurance
In most states, proof of liability insurance is required to complete the process for earning a general contractor license. Even when this is not required by the state, city or other local governments often require a certificate of insurance either before licensing a contractor or providing permission for certain types of construction projects. It is important to note that liability insurance is not the same thing as a surety bond, and that different jurisdictions may require contractor bonds on top of general liability insurance.
Beyond licensing, basic insurance coverage is a common interest for those seeking to hire a general contractor. Whether you are a plumbing contractor, an electrical contractor, or a landscaper, the projects associated with your business could be at risk of liability and significant losses. Your clients might ask for a COI to give them peace of mind. COIs are also essential for:
- Providing quick access to information: A COI is a summary of your insurance coverage and can help save you hours of additional work.
- Proving your insurance status: With a COI, you won’t have to carry around the bulk of your insurance policy to confirm you have insurance.
- Reducing liability: Documented COIs can help transfer losses caused by a third party to an insurance provider.
- Protecting your business when you outsource: By checking your vendor’s COIs and comparing it to your own, you can save yourself money if accidents occur.
COIs are sometimes required to win contracts as well. Many companies that hire contractors for work want to know that they won’t be held liable for damages, injuries, or unsatisfactory work. Having a COI can make it easier for you to enter into partnerships with other companies and grow your business.
What Does Liability Insurance Cover?
Liability insurance is commercial insurance that protects you and your business in the event you are sued for claims that are within the coverage of the liability insurance policy. There are different types of liability coverage, and the type of insurance you get will depend on what your business needs:
- Employer’s liability and workers’ compensation: Workers’ compensation coverage is mandatory for employers. It protects the business against liabilities from an injury or death of an employee.
- Product liability insurance: This type of insurance protects against lawsuits arising from an injury or death caused by products made by your business.
- Indemnity insurance: This insurance provides coverage against negligence claims resulting from mistakes or failure to perform.
- Director and officer liability: This coverage covers a company’s board of directors or officers liability coverage.
- Umbrella liability: This type of coverage is a personal liability policy that protects against significant losses and can help when other liability limits are reached.
- Commercial liability insurance: This insurance is a standard commercial liability insurance policy similar to general liability insurance. However, this policy can also cover slander, libel, contractual liability, tenant liability, and employment practices liability.
- Comprehensive general liability (CGL) policies: These policies are customized for businesses of any size. The coverage includes bodily injury, property damage, personal and advertising injury, medical payments, and more.
It’s important to note that liability insurance coverage typically covers both legal costs and payouts for the insured party. It does not cover intentional damages or contractual liabilities — this type of coverage is provided by performance bonds, which may be requested by a client but are not always legally required for contractors to operate.
Insurance vs. Certificate of Insurance
As stated before, a certificate of insurance is like a summary of your insurance policy. A COI itself does not provide coverage. Instead of having to read through an entire insurance policy, the client or company that is hiring you can gain all the information they need on one page. When a company asks for your COI, your policy can extend additional insured status to cover the hiring company in case of damages.
For instance, if you are hired by “Company A” for contracting services, they will ask you for your COI. After they have confirmed your coverage and are satisfied with the policy, “Company A” can endorse or amend your COI so that it includes their company in the coverage. This is called an additional insured status. An additional insured ensures that the company you are working for is covered and cannot be sued due to an incident related to your work. However, the additional insured may not have the same coverage as you do — it is all negotiable and subject to terms of each policy.
Sometimes there is no additional insured company on a COI. Typically, it depends on the type of work or industry the business is involved in. It’s important to note that a COI cannot modify coverage or alter the terms of an insurance contract.
How to Get a Certificate of Insurance
To obtain a COI, you must go through the following steps:
- Determine the minimums and limits of the client’s coverage. You must get their name, address, and tax identification number in case you need to increase your policy.
- Call your insurance broker and explain you need proof of insurance and the minimum coverage you need. If you need to increase your policy to fit the client’s needs, you must fill out additional paperwork before you can get your COI. If your coverage already meets the minimum requirements, then your broker will contact the insurance carrier to request the COI.
- Your broker will send you a printed copy of your COI which you can then send to your client to sign the contract.
It could take a few business days or weeks to obtain your COI from your broker, depending on how long it takes to get a hold of your broker and how long it takes for them to fill out the paperwork.
Whether you are hired by a company, a client, or are hiring subcontractors for yourself, obtaining a COI can help expedite the contract signing and provide peace of mind to your partners. While they are typically easy to acquire, it’s important to note that it could take days or weeks until you receive the document.