What is a Certificate of Insurance and Why Do I Need it?

Sometimes simply having insurance for your business isn’t enough.

Being insured is of course the most effective way to ensure you are protected from various risks, but in certain situations, specifically when partnering with other businesses or hiring subcontractors, you need additional assurance that you’re protected.

When entering into a partnership with other businesses, you open yourself up to new risks, especially if the other business/vendor/contractor etc. isn’t properly insured. 

This is where a certificate of insurance (COI) comes in.

At Berry Insurance, we’ve helped several clients obtain the COIs needed to complete various projects alongside partners, clients, and vendors. We’ve also helped clients navigate claims situations resulting from working with a partner with inadequate insurance coverage, so we know how important a certificate of insurance is.

Let’s talk about what a COI is, when you need one, and why it is important to share with business partners.

What is a certificate of insurance?

A certificate of insurance is a slip of paper (a digital or printed document), proving you have insurance coverage.

These could be for any type of business insurance, but are most often needed for general liability or workers compensation insurance.

The COI outlines details about your insurance policy including:

• Company name
• Insurer name
• Type of insurance
• Policy numbers
• Policy effective dates
• Coverage limits

Essentially, the COI serves as a proof of insurance so other businesses you work with know you have the insurance protections essential to minimize risks. It serves as a peace-of-mind before entering into a business agreement.

Do I need a certificate of insurance?

Depending on your role in relation to other businesses you work with, you may need a certificate of insurance.

If you are a subcontractor, vendor, or any business performing services on another business’ behalf, you will need to provide a COI. If you are hiring a subcontractor, vendor, or any business to perform services on your behalf, you will need to obtain a COI from the subcontractor.

Here are some more specific examples of by who and when COIs should be used:

• As a contractor, when bidding a job
• As a subcontractor, when bidding/working a job
• As a business, renting or leasing any equipment or vehicles
• As a business taking out a line of credit
• As a business or contractor looking to get bonded
• As a homeowner, hiring a contractor to do work at their home
• As a building owner who will be renting space to others
• As a landowner who will be allowing others to use their property for an event

The purpose of acquiring a COI is to make sure the person doing work for another company has coverage comparable to their own. That way, in the event of a claim, the subcontractor’s insurance will essentially respond and cover the hiring company.

If the subcontractor didn’t have adequate insurance and there were a claim, the hiring company would end up needing to pay.

Those who used subcontractors will also need to provide those subcontractors’ COIs when audited at the end of their insurance term. During that audit, the hiring company will be asked if they used subcontractors, and if they did, but didn’t have the COIs showing the subcontractors had their insurance, the company that hired the subcontractors would be charged as if they are their employees.

Why do I need to give my certificate of insurance to my clients/vendors?

Oftentimes, if vendors, clients, etc. are working with your business, they will ask you for your COI before they work with you to ensure you have the proper coverage to minimize any risks.

For example, if a subcontractor makes a mistake that results in some sort of property damage or injuries and the subcontractor does not have insurance, the company who hired the subcontractor can be sued.

A certificate of insurance is important to have because it will make it much easier for you to enter partnerships with other businesses. Without one, these businesses would be hesitant to partner with you.

There may also be times you are working with a partner and need to request a COI, because you wouldn’t start a project without knowing the proper insurance coverages are in place, right?

Even when working with someone you know, trust, or have worked with before, it is important to always include a COI in the process before signing any agreements. 

How do I get a certificate of insurance?

Generally, your commercial insurance company or agency will provide you with certificates of insurance for free.

To get a COI, simply contact your agent and provide the name and address of the person requesting the COI (the hiring company) and the insurance requirements of the hiring company. 

If the coverages match up, the agent will provide you with the COI to provide to the company you are doing work for.

If your coverages are inadequate, you have the option of buying the additional insurance (whether it be higher limits, or other coverages), or declining it, but if you decline it, that probably means you are losing the job.

Alternatively, some subcontractors choose to buy the extra insurance, then add the extra cost of that insurance to the price of the job they are completing, so the person requesting the insurance (the hiring company) ends up paying for it.

Cultivate business partnerships:

Strong partnerships are fundamental to your thriving business.

If you know how to use your COI, there should be nothing in the way of building these relationships. 

Keep in mind however, the COI is different from the actual insurance policy, which you will also need to have on file. The COI is simply a snapshot in time from when it was generated, so the person requesting it should know it does not guarantee coverage.

And of course, you’ll also need to have sufficient coverages in place in the first place, but that’s what we’re here for!

At Berry Insurance, we perform regular account reviews to ensure our clients have the protection they need, but be sure to reach out if anything changes so we can make sure you are covered and equipped for success in all your business ventures.