Ask an Insurance Expert: Why Do I Need A COI?

Hi, this is Bob from Evident. In this video we’re going to answer the question why you need to have a certificate of insurance. So imagine the following scenarios. You’re a transportation company and you’ve just signed on a new large account but they’ve asked to show that you have auto insurance or you’re an electrician and you’ve been hired by a general contractor to wire a large campus. You have to demonstrate that you have liability insurance. Before you can start or you’ve just secured a franchise license now corporates asking to show that you have property liability insurance for each store you operate. Or you just got a loan from a bank to buy some new equipment for your business. But the bank said you need insurance on this equipment until the loan is paid off for us. We’re gonna force place the policy for you. How do you show that you have that insurance?

Now, most of the time, you’re going to be contractually obligated to carry and prove that you have insurance. And you could just send them a copy of your insurance policy, but that’s 1. not a good idea, and 2. it’s not very helpful to the risk manager who now has to sift through 50 pages of insurance contract to see if you have what they asked for. So there’s a faster and easier way you can ask your insurer or your producer for a certificate of insurance that’s going to summarize your policy’s terms so you can demonstrate that you meet those contractual obligations. Now a good COI should match the request. So if you have $5 million in liability insurance limit, and the company that you’re working with has only asked that you have $1 million, your COI should show that you have $1 million you’ve been asked for, but on the flip side if you only have $1 million, and you need $5 million of coverage to start that engagement, you’re going to need to go procure more insurance so that you can meet that obligation.

Now, you may be thinking well we signed a contract say we’re going to pay don’t those contractual requirements covering why do I have to also go jump through all these hoops to get a certificate? Yes, your contractual requirements will obligate you to pay for losses, but your business partner is not going to know if you actually have the money to pay for those losses without the knowledge of insurance. So unless you have a big pile of spare cash sitting around to cover those losses, a certificate of insurance shows your business partner that you have the backing of insurance companies vast resources to help pay for any losses that you may cause.