A certificate of insurance is a document issued by an insurance company or agent that is used to verify the existence of insurance coverage. More specifically, the document lists the effective date of the policy, the type of insurance coverage purchased, and the types and dollar amount of applicable liability coverage. A certificate of insurance is often demanded in situations where liability and large losses are a concern.
Small-business owners and contractors often have a certificate of insurance to show the insurance coverage they have to protect against liability for workplace accidents or injuries. The certificate is issued when the company purchases liability insurance.
Importance of the “Certificate of Insurance”
A certificate of insurance is often required for business owners or contractors to win contracts. Because many companies and individuals hire contractors, the potential client needs to know that the business owner or contractor has liability insurance and that the client may not be held liable for damages, injuries or substandard work.
Typically, the client requests a certificate directly from the insurance company rather than through the business owner or contractor. The client should confirm the name of the insured on the certificate is an exact match for the company or contractor being hired. In addition, the client should check the policy coverage dates and ensure they are current. If the policy is set to expire before the job is completed, another certificate should be obtained at that time.
Example of a “Certificate of Insurance”
A certificate of insurance contains separate sections for different types of liability: general liability, commercial auto liability, umbrella and worker’s compensation. “Insured” refers to the person or company who is named on the certificate as having insurance.
The certificate includes the insured’s name and mailing address; the insured’s insurance agent’s name and mailing address; the name of the insurance agency’s contact person; and the names of the insured’s insurers. The certificate also describes the operations the insured performs; the name and address of the certificate holder; and a statement outlining the insurer’s obligation, if any, for notifying the certificate holder if the insured’s insurance is canceled.
The certificate briefly describes the insured’s policies and limits provided for each type of coverage. For example, the general liability section summarizes the six limits the policy provides and indicates whether coverage applies on a claims-made or occurrence basis.
In summary, the certificate of insurance is a document allowing a company to show proof of the different types of commercial insurance they have.