What is the Certificate of Insurance (COI)?
Certificate of Insurance refers to the document that contains all the crucial details regarding an insurance policy in a comprehensive and standardized format. This is used as a proof of 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 name of the policyholder, effective date, of the policy, policy limits and type of coverage.
Types of Certificate of Insurance
#1 – Certificate of Liability Insurance
Typically, companies that are involved in a business transaction 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 out of the lessee’s business operations.
#2 – Certificate of Workers Compensation Insurance
In case of construction jobs or other similar huge projects, the project management companies or general contractors are required to provide certificates of workers compensation insurance. It safeguards the contractors against various potential work-related risks, and it is a mandatory requirement in most of the 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 on the policy holder’s request. Usually, banks or lenders can request a certificate if they suspect that the borrower of the car loan is not having adequate insurance coverage.
Who Needs a Certificate of Insurance?
When a company hires a project management company or a general contractor, there are several risks involved. The contractor may cause some accidental damage to the property, or some of the contractors may be injured during the course of the project and the hiring company wants to ensure that it is not held responsible for the damages, injuries or substandard work performed by the contractor. For this reason, the hiring company can request the contractor to provide a certificate of insurance. However, the request for a certificate has nothing to do with trust; rather, it is all about mitigating the risk that may arise out of unexpected events.
This should not cost anything as it is a complimentary service that is offered by the insurer. 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.
- Proof of Insurance Status: This is the summary of the insurance policy with an effective date and policy holder’s name. Hence, it serves as proof of whether or not insurance is the effect.
- Quick Access to Information: This is the abridged version of the entire insurance policy. Hence, it conveniently provides quick access to the required information.
- Transfer of Liability: The hiring company can comfortably reduce its risk liability by collecting the certificates from the third-party contractors. In this way, the hiring company can transfer the loss to the third party’s insurer in case something goes wrong.
This has been a guide to What is Certificate of Insurance & its Definition. Here we discuss the types of COI, costs and who needs such a certificate. You can learn more about from the following articles –