Does a Business Need a Certificate of Insurance?

If you own a car, you no doubt have insurance for it. Every year, your insurance provider sends you a little card for you to keep with you in the vehicle. If you are stopped by the police or get in an accident, you can use this card as proof that you are properly insured. The same concept applies when it comes to your business insurance. At any time, especially when agreeing to contracts and funding, you can produce an insurance certificate to prove your coverage.

An insurance card, or an insurance certificate, is not a policy all on its own. It is a convenient way to show that you have insurance to provide to anyone who might be entering into agreements or working with you. Your business insurance certificate will have all of the basic details, such as what coverage you have, when the policy expires, the policy limits, and who the insurance provider is. It provides all of the necessary information from what can be a large policy document into a digestible one page document.

Do I Need a Certificate of Insurance for my Business?

This answer is very simple. Yes, you absolutely should have a certificate of insurance on hand. No matter what industry you work in, there will be times when you will need to quickly produce proof of your insurance. That said, it’s more important for some types of businesses than others. If you are using contractors to help complete projects, then you should provide proof that you are properly covered. As long as the other parties produce that proof as well, everyone is protected against third-party liability.

The more entities that are involved in a project or working agreement, the more complicated it will get. If you are the owner of the project, meaning that you are hiring third parties, you might be responsible for the actions of those other parties. You could be at risk from one of their employees getting injured, or damaging someone else’s property while working on your project. The more parties there are involved, the more risk, and the more liability. Certificates of insurance will make sure that everyone is properly covered and spreading the risk out more evenly.

What To Do After Collecting Certificates of Insurance

As the primary force behind a project, it’s up to your business to make sure that every entity has their coverage in place. You cannot afford to miss this step, so it should be a permanent part of your business agreements process. Make it a checkmark on your required documents list so that there is no mistake.

After you receive a certificate of insurance from another party, make sure to verify that it’s legitimate. They can unfortunately be forged, and if this agreement is with a new party that you are unsure of, you can call their insurance provider to make sure that it’s valid.

The next thing you need to do is make sure that it covers for as much as you need it to. This means that the limit is sufficiently high enough to protect against all risks, and that the effective and expiration dates are outside of the project timeline. Just because they have coverage during one period of time, does not mean it will extend just because the project is ongoing. If the other party says that they will get a new certificate with appropriate start and end dates, hold them to it and make sure they produce that updated certificate for you.

Some projects can involve many people and other businesses. Think of a construction project. It will have electricians, carpenters, plumbers, and any number of tradespeople involved. By leading the project, it is your responsibility to make sure that everyone is properly covered. An oversight with your insurance certificate documentation could spell disaster, so make sure that you have someone dedicated to tracking and filing the certificates, or hire an outside service provider for help.

When Your Business Is Asked to Provide a Certificate of Insurance

When you are not the lead on a project, you may be asked to provide a certificate of insurance yourself. You could be a contractor of another service provider, such as a wedding DJ or caterer. When this happens, you will need to provide them with that information quickly. Luckily, you can get your certificate of insurance in no time through your provider.

Always double check the information on your certificate. Never assume that the insurance provider has all the details correct. Make sure that your limit is high enough, and that the effective and expiry dates are appropriate for the project. You should also make sure that the correct name of your business is on the certificate. Insurance companies will look for ways to deny your claim, and any small error may disqualify you from getting compensation. The certificate should also show what type of coverage you have. In most cases this would be your general liability, but it may also include any special coverages you need just for that specific project.

What Happens Without a Certificate of Insurance?

If you enter into an agreement with a third-party, you need to trust that they will be able to take on any liability should the unthinkable occur. If you haven’t worked with an organization before, then you have no idea if they have the right coverage. In fact, you don’t know if even your most trusted partners have coverage if you’ve never asked them before. If there’s an accident and one of your partners does not have coverage, you could be left holding the bag and left to pay out damages and awards.

So yes, you do need a certificate of insurance for various situations. You also must ask partners in your projects and business operations for their certificates of insurance. You never want to take a chance, since fighting lawsuits and paying damages can lead to financial ruin for your business and possibly yourself. Never forget to ask for and provide certificates of insurance when entering into a business agreement.

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