Whenever you have a traffic-related interaction with a police officer, they ask for your license, registration, and proof of insurance. They want to confirm you’re authorized by the state to drive a car, that your vehicle is legally registered with the state, and that you have the insurance coverage required to operate a motor vehicle on public streets.
Similarly, a certificate of insurance (COI)provides proof that your company, or companies with which you’re doing business, have the necessary coverage for the work that is being performed.
This is chief among the reasons businesses need a certificate of insurance.
Let’s look at some other benefits of obtaining a COI.
It Conveys Your Professionalism
When your company serves as a contractor to another company, you’ll probably be asked to provide a certificate of insurance to indemnify the lead company against any potential issues that might arise during your work.
Having it at the ready — or, even better, providing it as part of your proposal bid —shows that you’re aware of the responsibilities related to the contractor position and you’ve already taken the required steps to mitigate potential risk. This enhances your credibility and makes it easier for you to secure new business. If you lack a COI, a client or partner may choose to work with another firm that has proof of insurance on hand.
Bottom line: Always get a COI whenever you accept a small business insurance quote.
Your Insurer Might Request It
When you’re the lead contractor on a job, your insurance company will require you to have COIs on file for all of the firms you bring in on the project. They’ll want to make sure they’re protected in case one of those companies is found responsible for an accident that results in injury or property damage.
If an untoward incident occurs and the subcontractor causing it is lacking coverage, you’ll be held liable. To head off that scenario and protect itself from undue risk, your insurance company wants proof subcontractors are adequately covered.
An All-Too-Real Hypothetical
Let’s say you’re an independent software developer hired to build a custom eCommerce platform for a large retailer. The project’s timeline means you’ll have to farm certain aspects of the coding out to subcontractors if you’re going to make the deadline.
You hire a group known for its security expertise to develop the protection protocols for the software. All goes well. The platform is implemented and functions without incident for several years.
Then, a hacker finds a way in, makes off with the retailer’s entire customer list, and sells it on the dark web. Suddenly, the shoppers start seeing a multitude of fraudulent charges coming through their accounts. Thieves have come into possession of their financial data.
Customers sue the retailer, who, in turn, sues you. You go back to the subcontractor and it turns out they weren’t insured. Your company is now on the hook for the damages. Further, your reputation takes a significant hit, which makes it very difficult for you to get similar projects going forward. Meanwhile, had you insisted upon a COI from that group of subcontractors before they began work, you could have avoided this costly liability.
Here’s What to Look For
Before accepting a COI, analyze it carefully:
- Confirm the company name listed matches that of the company entering into the contract
- Review the policy’s effective dates to verify that it’s current and remains in effect until the project is complete
- Check the policy limits to certify the coverage matches what you carry on your General Liability, auto, and workers compensation policies
- Be certain you’re named as an additional insured for the project or contract in question
Having a COI ready to go will help you earn business and demonstrate proof that you have adequate insurance coverage should an accident occur.