When you get pulled over for speeding, are you expected to pull out your entire auto insurance policy and hand it over for the officer to review? Definitely not. You simply pull out your insurance card. This card contains a summary of your insurance and its expiration date. From the card, the officer can quickly see if you have an active insurance policy.
If you have business insurance, a certificate of insurance is similar to that insurance card. It’s simply a document summarizing your business coverage and includes some basic facts about your policy.
Below you’ll find more information about what a certificate of insurance does, how to get one, who might ask to see it, and why it’s important.
Certificate of Insurance Explained
A certificate of insurance is a document that summarizes your business insurance policy. It’s different than a policy because policies are legally-binding contracts between you and the insurance company, and a certificate of insurance is not. Certificate of insurances contain basic information about your coverage, but they only reflect what’s written on the policy. Details listed on a certificate of insurance include the:
- Policy expiration date
- Policy effective date
- Insurance company
- Names of each covered party, including additional insured
- Type of insurance (such as general liability, workers’ compensation insurance, professional liability, automobile liability, or umbrella insurance)
- Policy limits and exclusions
- Policy number
It’s typically a one-page document highlighting key components of your insurance plan. This document is also known as a COI, a certificate of liability insurance, or proof of insurance.
Why Do You Need a Certificate of Insurance?
Small business owners need a certificate of insurance to prove they have adequate insurance coverage. You can show this document to anyone who asks about your business insurance. It’s typically for risk management so that others know you’re insured in case liabilities arise.
For instance, if you run a landscaping company, a contractor might hire you to help with a project. However, before you sign the contract, the contractor wants to know that you have the right levels of insurance. That way, if you cause property damage or bodily injury while you’re on the job, your insurance company handles the claim instead of the contractor’s policy.
As a business owner, you also might need to request COIs from your subcontractors or other businesses you work with. For instance, if your business is audited, asking your subcontractors for their COI can prove they have their own workers’ comp insurance and general liability. That way, you don’t get charged a premium for using uninsured subcontractors. No one wants to pay unexpected premiums at audit time.
Speaking of audits, Hourly can help you avoid audit surprises. Hourly offers streamlined workers' comp insurance and payroll services for small businesses with hourly workers. Powered by real-time data, Hourly’s platform simplifies the highly complex workers’ comp process. Hourly syncs your payroll data directly to your workers’ comp policy so you only pay exactly what you owe on your premiums, not an estimate.
Here are a few other scenarios where you might need a certificate of insurance.
- You’re a contractor, and a potential customer wants to hire you to put on a new roof. However, they want to know that you’re insured in case anything goes wrong.
- Your business is putting in a bid for a project and one of the requirements is to provide proof of insurance.
- You run a nail salon and want to partner with an up-and-coming nail polish company. However, you want to make sure it has the right insurance in place if any of your clients react to the polish and sue for damages.
Any business you work with, or customer you serve, could ask for a COI. This shows that you have coverage and won’t need to file a claim under their policy if there’s a problem. You can also ask for a COI as a business owner. It’s a way for companies and individuals to minimize risk.
How Do You Get a Certificate of Insurance?
If you’re asked to provide a certificate of insurance, ask your broker to give you one. It should be free. You may need to fill out a form online with your name and address, though your broker may have a different procedure in place.
When you read and review your COI, make sure you follow these general rules:
- Verify that your business name is listed correctly. If you’re doing business under your name, your name needs to be listed as the policyholder. If you’re an LLC, the LLC name should be listed instead. If you’re working with a DBA, either you or your DBA can be listed.
- Verify that your certificate holders and additional insured are listed correctly. Take time to double-check the spelling and contact information of everyone listed on your COI. If you need to add anyone or another business as an additional insured, contact your broker and request that change.
- Verify your coverage. Now is the perfect time to make sure your policy hasn’t expired. Check the policy expiration date, and if it’s in the past, contact your broker right away to renew your coverage.
You should also make sure that your coverage limits meet the expectations of the entity requesting the COI. If they aren’t, ask your broker to make the changes to your plan that are needed to get you up to their requirements.
How Long Does It Take to Get a COI?
If you don’t need to make any changes to your insurance coverage and you can request a COI online, you may be able to get it instantaneously. However, some insurance companies may take 24-48 hours to process your request.
If you need to make changes, the process can take longer. It’s best not to leave this task until the last minute, in case your insurance company takes some time to get back to you.
How Does a COI Work?
A certificate of insurance simply shows another business or individual that you have insurance coverage. Typically, you’d need to produce this form at the beginning of a new project or during the hiring phase.
If you’re asked to produce a COI and don’t yet have insurance, you’ll need to first apply for a policy with your brokerinsurance company. Then once the policy is active, you can request a certificate of insurance.
You might also need to make changes to your policy before you request the COI. For instance, if a project manager requires commercial general liability and you only have professional liability, you’ll either need to pass on the job or get the correct type of coverage. If you choose to add or update your insurance, you can then send in a certificate of insurance to prove the new policies are in effect.
What Is a Certificate Holder on a COI?
When a company asks you for a certificate of insurance, it might ask to be listed as a certificate holder. This process doesn’t alter your insurance plan at all or allow the company to make changes on your behalf.
Instead, it merely notifies the certificate holder if your insurance policy changes or if there’s a policy cancellation. Your insurance company can add the certificate holder for you. It also handles sending updates to this person or business for you.
Who Needs a Certificate of Insurance?
Anyone with a business could be asked to provide a certificate of insurance. However, it’s more common for businesses that have greater liability of damage or loss. This could include:
- General contractors
- Specialty subcontractors such as electricians, roofers, or window cleaners
- Delivery drivers
- Tech specialists
No matter what type of business you have, you could be asked for proof of insurance.
How to Verify a Certificate of Insurance
If you’ve asked for a certificate of insurance from a small business owner, it’s important to note that this type of insurance form can be faked, be outdated, or have incorrect information on it. Since a COI is merely a reference of insurance coverage, it isn’t legally binding. This means a certificate of insurance that someone gives you isn’t actually proof that they have the right insurance coverage.
Since the COI can contain the wrong information, it’s essential to verify any COIs you receive.
To help you check for authenticity, here are a few things you can do:
- Review the form carefully and make sure the name and contact information of the policyholder matches the person or company you’re working with
- Check the policy limits to make sure it’s what you require
- Check the expiration date carefully and see if the policy expires before your project finishes. If it does, make a note to ask for a new COI before the old one expires
- Use the insurer information on it to contact the agent or broker and verify coverage.
Prove You Have Business Insurance
If you’re asked to provide proof of insurance, make sure to ask your broker for a certificate of insurance. This way, everyone you work with can see that you have the right type of insurance coverage. Knowing that you’re insured can help minimize risks and make people more likely to work with you.