Importance of a certificate of insurance

Posted in Business

A certificate of insurance is an official document issued by your insurance company; think of it as your proof of insurance. Here’s everything you need to know about this important piece of paper.

What exactly is a certificate of insurance?

This certified piece of paper proves that an individual or company has insurance. It includes coverage types and liability limits, plus the effective date of the policy and insurance company name.

According to Trusted Choice, approximately one in 25 errors and omissions (E&O) claims involves a certificate of insurance. Twenty-one percent of those cases involve instances in which the holder of the certificate of insurance has misrepresented coverage or claimed to have coverage that does not exist.

What type of situation would warrant one to request a certificate of insurance?

Any situation where there is risk for large loss and liability — for example, let’s say a business is looking to contract a roofing company to replace the roof on their building. They will request a certificate of insurance to ensure the roofing company has adequate coverage for the project so the business is not held liable for:

  • injuries — i.e. a roofer fell off a ladder and broke a leg
  • property damages — i.e. the rooftop air conditioning units were damaged by the roofers during the install
  • poor work — the business would be able to go after the roofing company’s insurance company in this case

Employing or contracting an uninsured or underinsured vendor can be detrimental to your company’s finances.

What to look for on a standard certificate of insurance

Requesting the certificate but not knowing how to read it will do you no good. The same is true if you pass it off to someone who is not familiar with insurance or this type of document. General components of a standard certificate of insurance are:

  • General liability
  • Automotive liability
  • Umbrella
  • Workers’ Compensation coverage
  • Additional insured status — let’s say you’re working with a subcontractor; if this is present it means they are taking on full responsibility for their work
  • Name of Insurance company
  • Policy date
  • Limits

Still not sure if the individual’s/company’s coverage is right? You must answer “yes” to all of these questions — if you answer “no” to any, then their coverage is not right for your job:

  • Is the coverage amount enough to cover the entire job?
  • Is the original an official document from the insurance company?
  • Does the policy period cover the dates needed for the job?

How can you get a copy of your certificate of insurance?

Contact your independent insurance agent for a copy today.