With the warmer weather here, many companies may be looking into hosting in-person events once again. If you’re thinking of hosting a party on your property, it’s important to clarify whose insurance will respond in the event of an incident or loss. In other words, is it the property it is held on or those in charge of the festivities themselves? When you have business arrangements with another company, understanding responsibility and risk is important. A Certificate of Insurance is a document that verifies the existence of insurance coverage. In this article, we explain what a COI is, as well as who should have one and why they’re important when protecting your business.
What is a Certificate of Insurance?
A Certificate of Insurance essentially summarizes the key aspects and conditions of the policy. This is also known as a certificate of liability insurance or proof of insurance. Usually no more than one page, it includes the most important, basic information in relation to your coverage. This includes the policy’s expiration date and effective date, who has coverage by the policy, what type of coverage it is (general liability insurance, property insurance, etc.), and your policy’s limits.
It provides your business a quick and easy way to prove that it has insurance coverage. It’s a document that verifies the existence of insurance coverage under specific conditions granted to listed individuals.
What a Certificate of Insurance is NOT
A COI is not a formal contract between the two parties. It is an informational document showing proof of insurance. It also does not constitute a contract of insurance between the certificate holder and the issuing insurance company/broker.
Reasons why COI’s are necessary
Certificates of insurance are important for everyone that you do business with; you, your partners and your customers:
- For you. Providing proof of insurance makes it much easier for you to enter into partnerships and grow your business.
- Those you want to do business with. Businesses looking to hire will usually ask that those bidding include a COI along with their bid. It can be a great advantage being able to prove that you have proper insurance if competing bidders cannot.
- When you are looking for business. If you often hire subcontractors to work on projects, then you need to request proof of insurance from them. If your subcontracts make a mistake that results in costly property damages/injuries and they do not have coverage, you can easily be sued for those damages.
- Audits. A COI is a requirement to avoid paying premium on your general liability and workers compensation for your employees’ sales/payroll.
Tip: When requesting a COI from another business, be sure to verify the information on the certificate. Make sure the name of the business that you are working with matches the certificate. You should also check that the correct effective and expiration dates are listed.
When is a Certificate of Insurance a requirement?
A COI is a requirement anytime a third party supplies you with goods for your products or enters your property to perform a task outside of your control. Whether or not you should have one depends on the role your company is playing in cooperation with another company.
One example of this can be hosting a company Christmas party organized by a party planning company on-site. You don’t want to be liable for any damages, losses or claims from their event, so you’ll ask the party planners for a Certificate of Insurance. Your company will be added as an Additional Insured on their insurance policy. However, it will only be for the duration of the event (start and end dates). The certificate will also outline the coverage under specific conditions given to your company as the Additional Insured on their policy.
What is an ‘Additional Insured’?
There are several different entities that are in a COI, which is why it’s important to know the difference between each of them:
- The person or business that purchases the policy is known as the Additional Insured.
- The certificate holder is the person or entity that requests the COI and is in possession of it.
- An Additional Insured is a person or business that benefits from another entity’s coverage in some way. One of the most common ways is that the Additional Insured is often able to make a claim under a policy that they did not purchase.
FYI: It’s common for a certificate holder to request to be named as an Additional Insured on the policyholder’s policy.
You may need to purchase an endorsement on your insurance policy that provides automatic coverage for any party that is named as an Additional Insured on your policy. Basically, an Additional Insured endorsement on your policy will provide coverage for parties that are working with you.
How much does a Certificate of Insurance cost?
It actually costs nothing to obtain a Certificate of Insurance. This is a complimentary service given by the company that sold you your business insurance. However, if the job in question requires additional coverage that your policy does not meet, then you might have to pay an additional premium to cover those costs.
How do you obtain a COI?
If you need to request proof of insurance from your insurer, these are the usual steps you’ll need to go through:
- First, get the details: Find out the minimums and limits the coverage should have. Get your client’s name, address, and tax identification number in the case that you have to increase your premium.
- Next, call your broker: Explain what the minimum coverage amount is and that you need proof of insurance. If your policy already meets the requirements, then the broker will contact your carrier to secure the COI. If you need to purchase a rider to increase coverage for the project, your broker will give you the details and the paperwork you will need to fill out and submit.
- Finally, you’re all set: Your broker will create the COI and send a print out of the Certificate of Insurance to you, after which you will have to send it to your client.
What is the time frame for obtaining a COI?
Obtaining the Certificate of Insurance from your broker can take a few days, or even weeks. Depending on when you contact your isure broker, how quickly they are able to complete all the necessary paperwork and provide you with your COI can vary greatly from case to case.
Important: When it comes to getting a Certificate of Insurance, one of the biggest misconceptions is that you can acquire a COI without an active policy in place. This is not the case. Your policy must be active in order to receive a Certificate of Insurance.
At the end of the day, it’s all about minimizing risk and making sure that you have coverage if something happens to go wrong. A COI verifies existing insurance coverage and details what and how long your company is at risk for. To learn more about the different types of business insurance coverage we provide, contact one of our isure representatives today.