Many of our regular readers have intimated to us that they would like to know more about the Certificate of Insurance (COI). If you are one of them, please go through this article till the end. Here, we will discuss -
- What a Certificate of Insurance (COI) is
- Different types of COI
- Why you need one
- How to get a COI
We will also discuss other important topics related to it.
Let’s start from the basics ..
What is a Certificate of Insurance (COI)?
A Certificate of Insurance is a complete and standardised document that includes all the important information about an insurance policy. In other words, it captures the entire picture of an insurance policy in a standard format, with a summary of the key conditions and aspects of the policy. It contains details such as the name of the policyholder, policy inception date, the policy limits, the type of coverage and so on. A COI is issued by the concerned insurance provider or the broker.
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The certificate of insurance was created to make it easier for insurers to show proof of insurance to their clients and business partners. Instead of sending the entire insurance policy contract to the insured, the insurer can send him a one-page document detailing the most vital information related to the concerned policy.
Certificates of insurance (COIs) are mostly used in situations where liability and losses are of significant concern. In such a case, a client or partner will ask for a COI from the insurance provider, as a proof that certain liabilities will be covered by the insurance program at all times. If you own a small business, a COI can protect your business and your partners. It can also offer both you and your partners a risk transfer solution and absolute peace of mind before you start working together.
What are the types of a Certificate of Insurance (COI)?
Different types of a Certificate of Insurance (COI) can exist. We will discuss each of them in brief-
1. Certificate of liability insurance
Companies engaged in business relationships or transactions frequently need liability insurance. For example, the landlord of a commercial facility under lease may ask the lessee to submit proof of liability insurance in order to release them from any claims resulting from the lessee's operations.
2. Certificate of auto insurance
This type of COI may be seen as a form or insurance ID card issued by the insurer at the request of the policyholder. In most cases, banks or lenders can ask for such a COI if they believe the borrower of an auto loan lacks proper insurance coverage. Section 156 of the Indian Motor Vehicle Act (MVA) has also laid down that when an insurer issues a COI to the insured, he is deemed to have issued the insured person a policy of insurance, confirming all the particulars and descriptions in such a certificate.
3. Certificate of Workers Compensation Insurance
This type of COI is applicable in construction projects or other sizable undertakings of a similar nature. Here, the project management firms or general contractors are required to furnish COI to the workers regarding their compensation insurance. It protects the contractors from potential work-related risks.
What are the details included in a Certificate of Insurance (COI)?
The certificate of insurance includes separate sections for the different types of liability coverage mentioned above. It also includes information related to the ‘insured’, which may refer to the person, company or policyholder who is mentioned in the COI as ‘covered’ by the insurance.
A COI mentions the relevant coverage details in brief. The limits offered for each form of coverage are briefly described in the certificate along with the insured's policies. General liability, for instance, specifies whether the coverage is based on a per-claim or per-occurrence basis and lists the limits the insurance offers. Also, it contains the name and mailing address of the policyholder as well as information on the operations the insured carries out. Along with the address of the issuing insurance company, the contact information for the insurance agent or the representative of the insurance agency is also included. If there are multiple insurance firms involved, the relevant names and contact details are also provided.
A client becomes a certificate holder when he asks for a COI. The bottom left-hand corner includes the client's name and contact information as well as statements demonstrating the insurer's duty to inform him about policy cancellations.
Who needs a Certificate of Insurance (COI)?
The answer to this question will vary, depending on the part your company is playing in a partnership with another company. For instance, if your business is construction and you frequently engage with subcontractors on projects, you must ask them for a proof of insurance. You might easily be held liable for damages if your subcontractors commit an error that causes expensive property damage and injuries and they do not have any insurance coverage.
In another instance, if you own a restaurant and work with another business that supplies you with dairy goods, you will want to confirm that they are insured adequately. This example will show why it is necessary. Let’s imagine the business does not have insurance and they sell you bad products. If, after consuming your sweets (made of their dairy products), some of your customers fall sick and you are sued by the customers, your insurance will have to pay for all losses.
In another example, let's assume your restaurant is hired to accomplish a catering job at an event. Before signing the contract and granting you the job, the person or organisation hiring you would like to make sure that you are properly insured. For this reason, they may ask for a COI in the negotiation phase itself.
Please note that trust has nothing to do with requesting a certificate of insurance. It is all about reducing risk and making sure you have insurance in case something goes wrong. You should also make sure to request a COI each time you sign a new contract or agreement with the company you are working with, even if you trust them and have dealt with them frequently in the recent past. This enables you to prevent a situation where you are taking unreasonable risks in order to complete the work that your partner company has been contracted to perform.
Here is another important point to note. When you request proof of insurance from another company, make sure to verify the document they have given you. To do this, get in touch with the broker or representative who issued the COI. Make sure the company name on the COI and the name of the company you are working with are the same. To ensure that the business will be protected for the duration of its collaboration with your firm, it is a good idea to look at the effective and expiration dates mentioned in the Certificate of Insurance.
Why do you need a Certificate of Insurance (COI)?
As evident from the previous sections in this article, a Certificate of Insurance is essential to you, your partners and your clients. Being able to show proof of insurance (as an insured business) makes it much simpler for you to form partnerships and expand the horizons of your business. Being able to obtain a COI whenever necessary is vitally essential for the success of your business because few businesses or clients these days are prepared to collaborate or do business with an uninsured firm.
The company that is hiring will typically request that you submit a Certificate of Insurance along with your bid if you are submitting one to win a contract or job. In most circumstances, having the appropriate insurance and being able to substantiate that you are covered will put you ahead of competing businesses, which might not have the appropriate insurance in place.
Another instance where you need a COI is when you are going through an audit. To avoid paying a premium on your general liability and workers' compensation for the sales and payroll of your employees, you must have a certificate of insurance.
To sum up, a COI can provide important benefits in the below-mentioned contexts-
- As a proof of insurance status- The COI is an insurance policy summary with the mention of an effective date and the name of the policyholder. Hence, it serves as proof and clears the doubt about whether or not the insurance is in effect.
- Provides transfer of liability- By obtaining the COI from third-party contractors, the hiring business can easily lower its risk liability. In the event that something goes wrong, the hiring business can transfer the loss to the insurer of the concerned third party.
- Provides quick access to information- The COI is basically an abridged version of the entire insurance policy. Hence, it provides quick and convenient access to all the required information.
How to get a Certificate of Insurance?
You need to follow the steps given below if you want to get a certificate of insurance from your insurer-
- Firstly, in case one of your clients is asking for the COI, ask him about the limits of the coverage. If you need to increase the premium, get the details from the client, such as his name, address, PAN and so on
- Call your broker, let them know you need a proof of insurance and explain what the minimum coverage amount is. The broker will get in touch with your insurer to obtain the COI if your policy already satisfies the requirements. Your broker will provide you with information and the paperwork you must complete and submit if you need to buy a rider to extend the coverage for the project.
- Next, your broker will create the COI and send a printed copy of the same to you. You can then send it to your client and sign your contract to start the collaboration.
Please note that the process above is fairly easy to understand. However, it may take a few days, depending on how quickly the broker can complete the necessary paperwork with the insurer and get the COI on your behalf.
If you are asking for a COI from another business or a contractor, they should be able to obtain it from their insurance provider. Alternatively, they may provide you with the contact number of their insurance provider. You can ask the provider to send the COI to you directly.
What is the cost of a Certificate of Insurance?
A certificate of insurance (COI) is completely free to obtain because the insurance provider that sold you the insurance should be providing it as a free service. However, while obtaining a COI, you might have to pay an additional price to cover the costs if you need an additional coverage that your policy does not provide at the moment. Regardless of how many certificates you require, your broker should never charge you a price for supplying them to you. It's time to switch your existing broker in case he is charging you a fee for delivering a COI.
The footnote:
We hope the discussion above will help you understand what a Certificate of Insurance (COI) is and why you need one. We have also discussed other important matters related to COI.
