An insurance certificate, also commonly referred to as a certificate of insurance or COI, is a document that summarizes the primary points of a policyholder’s insurance coverage.
COIs serve as evidence of coverage—they’re validation that a policy exists and is fulfilling the correct coverage requirements as laid out by a hiring party. Because they are official documents, they can only be issued by a policyholder’s insurance agency or broker (the one providing the coverage).
COIs are very common in the business world, especially for those often working with third parties like contractors and subcontractors, vendors, etc. This is because any business would want to ensure that the parties they’re working with have the appropriate insurance coverage in place to protect itself against possible liability issues that could occur.
Is your company’s compliance up to snuff? Read on to learn more about insurance certificates and how they might impact your business’s bottom line.
What Is an Insurance Certificate for a Business?
How important is a certificate of insurance in the world of business? Very. Especially in the case that your company repeatedly hires third parties such as contractors and subcontractors, vendors, and others, you’ll need to become familiar with the basic principles governing COI.
It’s very common for businesses to hire third parties, such as contractors, on a construction site. To remain protected from the risk associated with the job that those contractors do, these businesses will need to procure insurance certificates from each one that they hire. Getting COIs from the third parties you work with is crucial in order to make sure that they have enough coverage in place for themselves to cover anything that could become a claim throughout their time working with you. If not, it could be your business on the line held responsible for paying for damages.
Additionally, sometimes businesses have to prove that they have the correct insurance to enter into a partnership with another company, for example, when becoming an exhibiting vendor at an event or another business’s supplier. Certificates of insurance for small businesses typically provide proof of coverage for standard small business insurance policies like general liability insurance (which covers accidents involving customers) and professional liability insurance (which covers legal defense costs if a client sues over professional negligence or a mistake).
One thing it’s essential to note here is that certificate of insurance requirements vary from state to state. Since each state has its own rules and regulations governing insurance contracts, companies conducting business across multiple states should either keep good track of all the rules wherever they operate or lean on a sophisticated compliance tool like COI tracking software. For example, myCOI empowers teams to ditch their manual tracking spreadsheets and workbooks with easy-to-use tracking software.
Why Do Companies Need a COI?
As you know, insurance coverage provides protection to businesses and individuals. In exchange for a policyholder paying them premiums, an insurance company agrees to assume the financial burden associated with previously agreed-upon damages in the event that they occur.
But, insurance coverage is useless if it’s expired, doesn’t cover what you thought it did, or has lower coverage limits than are needed in a given situation.
That’s why it’s imperative to verify that the third parties you hire have adequate coverage in place. You don’t want them to be on the hook for costs associated with an on-the-job injury or another covered case, and you don’t want your business to be either.
That’s where COIs come in. Companies ask for certificates of insurance because they want to remove any possible risk of financial loss. Businesses can better protect themselves and the third parties they’re working with by requesting, obtaining, and verifying insurance certificates from each one they hire.
COI Common Questions and Best Practices for Businesses
We’ve covered a lot about insurance certificates in this blog so far. To wrap up, here are a few common questions and best practices to keep in mind as you wrap your head around insurance compliance and COIs:
- When should I ask for a COI? Typically, the earlier, the better. You should definitely request a COI from a party before they begin working with you.
- Who should I request a COI from? Request COIs from every third party you hire, and be clear about what coverage you’re asking for proof of, as well as any other requirements you have.
- What do I do once I get a COI from someone? Read each document thoroughly to confirm that it’s correct and meets your standards. Make sure all contractors or vendors have acceptable coverage levels and effective dates that cover the time that they’ll be working with you.
Protect Your Business’s Bottom Line with myCOI
Don’t let your business be exposed to or suffer from unnecessary risk any longer. Ensuring that your hired third parties are adequately protected is a significant step toward avoiding financial losses. Let our team of compliance experts provide guidance for your toughest COI struggles. Contact us today to learn about our certificate of insurance services.