Certificate Of Insurance

Article byWallstreetmojo Team
Edited byPallabi Banerjee
Reviewed byDheeraj Vaidya, CFA, FRM

What Is The Certificate of Insurance (COI)?

A Certificate of Insurance is a document containing all the crucial details regarding an insurance policy in a comprehensive and standardized format. The insurance company issues it as proof of insurance coverage for the policyholder, used in various business transactions.

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One may use it to prove the policy’s current status, coverage details, risk exposure, and protection against third-party liability. In other words, it captures the complete snapshot of an insurance policy in a single standardized form, which primarily includes the policyholder’s name, effective date, policy limits, and type of coverage.

Certificate Of Insurance Explained

The certificate of insurance is issued from the insurance company or the broker in the form of a document that states all important details related to the policy. It serves as an evidence of the existence of the policy and guides the holder regarding every type of coverage, date from which it is applicable, when it expires, the insured parties and their details, etc.

It is widely used in different types of business transactions where it helps in clarifying the areas of protection with their limits. The certificate of insurance for business gives details about the insurance company or the broker too, who should be contacted in case of claims.

It contains the terms and conditions to be followed during the coverage and gives valuable information that helps the policyholder remain updated in case of any changes. During any business agreement or contract, this certificate assures the concerned parties regarding financial protection so that the extent of liability can be easily assessed beforehand in case there is a possibility of an accident or liability.

However, while accepting the document, both the issuer and the policy holder should be well aware of its terms and ensure that they are in line with the actual requirements and risk levels.

Types

Let us look at the different types of the certificate of insurance for business that is available for the purpose of insurance coverage.

Certificate of Insurance

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#1 – Certificate Of Liability Insurance

Typically, companies involved in a business transactionBusiness TransactionA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more or relationship require liability insurance. For instance, the landlord of a leased commercial property can request the lessee to provide the certificate of liability insurance to absolve themselves from any liabilities arising from the lessee’s business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation.read more.

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#2 – Certificate Of Workers Compensation Insurance

The certificate of insurance for workers compensation is an essential requirement in the case of construction jobs or other similar huge projects. The project management companies or general contractors must provide workers compensationWorkers CompensationWorkers compensation is the insurance against the workplace injury, and it covers the damage due to injury by providing monetary benefits to the employee for medical expenses, disability benefits. Thus, it saves the interest of both the parties, the employer and the employee.read more insurance certificates. It safeguards the contractors against potential work-related risks, a mandatory requirement in most states.

#3 – Certificate Of Car Insurance

This type of certificate of insurance may be seen in the form of an insurance ID card or a full-sized form issued by the insurer at the policyholder’s request. Usually, banks or lenders can request a certificate if they suspect the car loan borrower does not have adequate insurance coverage.

Purpose

When a company hires a project management company or a general contractor, several risks are involved. For example, the contractor may cause some accidental damage to the property. In addition, some of the contractors may be injured during the project. Therefore, the hiring company wants to ensure that it is not held responsible for the contractor’s damages, injuries, or substandard work. For this reason, the hiring company can request the certificate of insurance holder to provide  the document. However, the request for a certificate has nothing to do with trust. Rather, it is all about mitigating the risk that may arise from unexpected events.

Example

Let us assume that ABS Ltd wants to expand its office space and plans to build another separate building to accommodate people for two more departments. ABS Ltd has hired Speciality Contractors for this purpose. Even though Speciality Contractors have a very good brand image in the market due to their quality of work and reputation of finishing it within the stipulated time, ABS Ltd wants a copy of their certificate of insurance for workers compensation so that there is certainty regarding insurance coverage of all the people working for Speciality Contractors.

The above will ensure that in case of any accident of unforeseen contingency while the construction work is taking place, the liability will not fall on ABS Ltd. Therefore the company will hire Speciality Contractors only after assurance regarding in existence of the insurance policy.

How To Get?

There are a few steps involved in getting the document, which are as follows:

  • The first step is to contact the insurance company or broker who provided the policy. Their contact information is ideally given in their website or policy document.
  • Once contacted, the broker or company will prepare the certificate with the details like policyholder’s name, contact details, details of coverage which includes type, date when it will commence, expiration date, extent of coverage, how to claim in case of liability, policy number, individuals covered in it, their details, reason for coverage, etc in a concise manner.
  • Next the issuer will send a draft to the policyholder for review, which should be done in details so as to ensure that the terms and conditions match the actual policy. The insured party should request for changes, in case it requires any.
  • Finally, the document is delivered to the insured. If any client has requested for it, then the same should be sent to the client because without it the certificate of insurance holder, who is entering into a business contract with the client, may lose the contract.

Thus, the above are the typical steps for getting certificate of insurance. However, the insured should keep track of any renewals, changes in terms and conditions or updates and get the same done at the earliest.

Costs

It should not cost anything as the insurer offers a complimentary service. However, if the requested limit coverage necessitates the purchase of a rider for additional coverage, then the insurer might have to ask for payment of the additional premium. Other than that, the broker or the insurer should never charge any fee for providing a certificate of insurance.

Importance

Importance of Certificate of Insurance

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  1. Proof of Insurance Status: The insurance policy summary with an effective date and policy holder’s name. Hence, it serves as proof of whether or not insurance is the effect.
  2. Quick Access to Information: This is the abridged version of the entire insurance policy. Hence, it conveniently provides quick access to the required information.
  3. Transfer of Liability: The hiring company can comfortably reduce its risk liability by collecting the certificate of insurance for contractors from third-party contractors. In this way, the hiring company can transfer the loss to the third party’s insurer if something goes wrong.

Certificate Of Insurance Vs Policy

Even though both the above documents are related to the same insurance policy, there are some differences between them, which are as follows:

  • The former is a summarised document whereas the latter mentioned every point related to the policy in great details.
  • The former is not a legally binding document, but the latter is. The main policy document clearly states the rights, obligations, terms conditions etc in great details, which makes it suitable for use during legal issues.  
  • The main purpose of the former is to provide a proof of the existence of the insurance policy especially used as certificate of insurance for contractors, whereas the latter is the actual policy document that gives all details regarding the same.
  • In case of any changes to be made in the policy, the former will be edited only after the latter is done so. This is because the former only reflects the terms of the latter. It is not the main policy in itself.

Thus, the above are some important differences between the two. It is necessary for the insured to understand these distinctions so that the appropriate document can be used as and when they are needed.

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