What is a Certificate of Insurance (COI)?

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Definition:

A certificate of insurance is a document your insurance company can issue to prove you’re insured and provide essential information about your policy.

🤔 Understanding certificates of insurance

If you need proof of your insurance policy, your provider can issue a certificate of insurance (COI). This document lists the policyholder’s name, the type of coverage, the insurance company’s name, coverage limits, effective dates, and other information. Policyholders might need to provide a COI to individuals or organizations that want to hire them when there is a chance of significant losses. Potential clients don’t want to risk facing any liability, so they prefer to ensure the company they’re hiring has adequate insurance before they enter into a contract.

Example

Imagine Bob owns a roofing company. Because he works in an industry that involves potential losses in the form of property damage and injury, Bob’s clients typically want to confirm he has adequate insurance so they won’t be liable for any damages. Bob contacts the company that provides his business insurance to get a certificate of insurance, which will give his clients some peace of mind when they hire him.

Takeaway

A certificate of insurance is kind of like a driver’s license…

By carrying your driver’s license, you can show law enforcement that you’re allowed to operate a vehicle. If you can’t prove that you’re licensed to drive, you might run into trouble. Similarly, your certificate of insurance allows you to prove to clients that you or your business are insured. Without it, some clients might be hesitant to work with you.

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What is the purpose of a certificate of insurance?

When people hire a vendor or contractor, they typically want to know the company has insurance. They want confirmation that they won’t be liable for any damages the vendor or contractor causes. That’s where a certificate of insurance (COI) comes in.

The purpose of a COI is to prove to potential and existing customers that your business carries necessary liability coverage. The certificate summarizes who the policyholder is, the name of the insurer, the type of coverage, coverage limits, and more.

If you own a company, a certificate of insurance can help persuade clients to work with you over competitors or assure them you meet requirements. If you’re an individual hiring a company, a certificate of insurance can give you peace of mind that you aren’t likely to be held liable for damages they cause.

For example, let’s say you hire a caterer for your wedding. The caterer serves food made with expired ingredients, and several of your guests get sick and require medical attention. The last thing you want is to be stuck paying medical bills because of your caterer’s misstep.

If you make sure ahead of time that the caterer has appropriate liability insurance, you can rest assured that its insurer will cover the costs instead of you. Asking for a certificate of insurance may be a good idea anytime you’re hiring a company in a situation where there could be damages. Companies that can’t provide one may have trouble winning contracts.

What does a certificate of insurance include?

There is no single template for certificates of insurance. One common format comes from the Association for Cooperative Operations Research and Development (ACORD), a nonprofit that sets standards for the global insurance industry. It includes:

  • Date: When the insurance company issued the certificate of insurance.
  • Producer: The name of the insurance broker or agent who issued it. This section also includes the insurance company’s address and contact details.
  • Insured: This area contains the name and address of the policyholder. It should match the name the company gave you.
  • Insurers affording coverage: This is a list of insurance companies that issued the policies.
  • Insurance coverages: This section summarizes all the insurance policies the company has. These may include liability insurance, workers’ compensation insurance, auto insurance, or umbrella insurance. It also lists policy numbers, effective dates, and expiration dates.
  • Coverage limits: These are the maximum amounts the insurance company will pay to cover any liabilities. Limits can apply to each occurance, to specific losses (like medical expenses or bodily injury per person), or to the overall policy.
  • Description of operations/locations/vehicles: This section is a bit of a catch-all. It can include any critical information about the company’s operations, such as specific job sites or vehicles. It can also name additional insured (see below for more on what that means).
  • Certificate holder: This is the person the insurance company or agent issued the form to.
  • Cancellation: The certificate of insurance spells out the expiration date. It also states that, if the policyholder cancels sooner, the company will notify the certificate holder.
  • Signature: This is the signature of the authorized representative who issued the certificate.

How do I get a certificate of insurance?

If you are a business owner, you might want to keep a certificate of insurance on hand to show potential customers. You can get this form by contacting your insurance company.

However, people who are hiring contractors and other firms often want an insurance company to issue a COI directly to them. That way, they can become a certificate holder that the insurance company promises to notify if you cancel your insurance. Receiving the COI directly from the insurance company also ensures that the contractor isn’t providing a fraudulent document. An insurance agent is usually the one that issues a COI.

What are COI best practices?

If you’ve asked a contractor or vendor for a certificate of insurance, you’re on the right track. But you also have to review the document to ensure they have the coverage they need. Here are some rules of thumb to follow when reading the form:

  • Ensure that the business you are hiring matches the name of the company on the certificate. If liabilities arise, you want to be confident that the certificate you have refers to the right company.
  • Check ratings for insurers: Look up the rating for each provider listed with AM Best, a credit rating company for the insurance industry, to make sure the insurer is likely to be good for the money.
  • Check expiration dates. Insurance policies are effective for a limited period. When you’re looking over the certificate, review expiration dates. If coverage will end while you’re working with the company, you may want to amend your contract to require that the company provide an updated certificate 30 days before the current one is set to expire, or else work will stop.
  • Verify that the business has the right coverage. General liability insurance covers damages caused by the company’s premises, operations, or products, such as injuries to third parties. Workers’ compensation pays for employee injuries on the job. Auto insurance applies to injuries or property damage from car accidents. Umbrella insurance covers certain other losses when they exceed the limits of other policies. Ensure that the business has the right coverage for the potential liabilities that exist.
  • Make sure policy limits are sufficient. If the company you’re hiring has gone with the cheapest insurance plan and the lowest amount of coverage they could get, that may not be a good sign. Make sure policy limits are high enough to cover any liabilities that might come up.

What does additional insured mean?

Certificate of insurance may contain information about an “additional insured.” This is a person or organization other than the policyholder who is also covered by an insurance policy.

If you hire a company, you might want to have it amend its insurance policy to include you or your company as an additional insured. If you don’t do this, the company’s insurance policy typically doesn’t cover you by default.

Let’s say the fictional Al’s Coffee Shop hires fictional Five Star Construction Company to renovate its building. Five Star has general liability and workers’ compensation insurance. So if the company’s crane damages someone’s property or a worker gets hurt on the job, the policies should cover the cost up to their limit.

But let’s say that a customer sues Al’s Coffee Shop over the work that Five Star Construction Company did. Even though it was the construction company’s fault and it had liability insurance, Al’s Coffee Shop wouldn’t be covered by the policy.

Having a company amend its insurance policy to include you as an additional insured means you’re covered if someone sues you because of the company’s work. It’s important to note that getting a copy of the COI is not enough to provide you coverage. Your name or your company’s name must also be on the certificate as an insured. Even that is not a guarantee that you are an additional insured on the actual policy. You may want to request a copy of the additional insured endorsement to be sure.

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