Introduction
The insurance certificate is a type of financial instrument issued by banks or other financial institutions. They are designed to provide protection against risks associated with life events such as death, disability, unemployment, divorce, etc. Insurance certificates are usually issued in return for a premium paid at the time of purchase. These certificates are typically held by individuals who wish to insure their lives or those of their family members.
In simple terms, insurance certificates are financial instruments issued by insurance companies. They are similar to bonds or other debt securities, except that they pay out cash instead of interest payments. Insurance certificates are usually issued by life insurance companies, annuities, and mutual funds. They are often sold through brokers who act as intermediaries between investors and insurers.
How to Read an Insurance Certificate
Most brokers and insurers use a COI form called an ACORD Certificate of Liability Insurance. However, even if the COI you’re looking at isn’t based on the ACORD template, it should list the following important information:
- The date of policy effective and expiration dates
- The name of the certificate holder
- The name of the people or businesses who are covered by the policy
- The name of the insurance carrier
- The type of coverage it provides
- The limit of the insurance provided (in dollars)
Confused about what this jargon means, or why it’s important? Don’t worry. We’re going to break down everything you need to know. Let’s start with the top and make our way down, shall we? At the very top of the COI, you’ll see the ACORD logo and a message explaining that what you are looking at is a Certificate of Insurance. This will state something official, like:
“THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER.”
This statement will be in all caps to ensure there is no confusion that this document is merely a COI showing proof of insurance, and does not amend or change any terms of the referenced insurance policy.
Beneath that will be the date of the COI and the interested parties it involves:
- Date: This refers simply to the date the certificate was issued. It is not the same as the Policy Effective Date, which notes the date that your policy goes into effect.
- Producer: This refers to the agent of record who represents the insurers or the insured in the transaction. It will include the legal name of the broker or the agent, along with their business address.
- Insured: This refers to the policyholder (that’s you!). It will include the legal name of the policyholder, whether that’s your name or the name of your company. As with the Producer, this will include contact information associated with your policy, such as your business address and email or phone number.
- Insurer(s) Affording Coverage: This section will name all the insurance companies providing coverage, along with their NAIC number. Think of this as the insurance company that will ultimately pay out the claim should you have one. This number is assigned to each individual underwriting company registered with the National Association of Insurance Commissioners (NAIC). If there is only one insurer, their name will appear in the first line, next to the words “Insurer A.” If there is a second insurer, their name and NAIC # will appear in the second line, next to the words “Insurer B.” If you guessed the third insurer is listed as “Insurer C,” you’ve got the hang of things.
Now, onto the Coverages section. This is the main section of the COI. It is organized into different rows, with each row representing a different type of insurance coverage. These may include:
- General Liability
- Professional Liability
- Hired and Non-Owned Auto (HNOA) Liability
- Umbrella and Excess Liability
- Workers Compensation and
- Employers’ Liability
Always make sure that your coverage is appropriate for the activities you’ll be doing. For example, a stunt person likely needs a different type of liability insurance than a freelancer. The types of coverage often boil down to the types of risk inherent to the profession.
For each type of insurance coverage, the following information will be listed in columns, creating that tabular format you see on COIs:
- Insr Ltr: This stands for “Insurer’s Letter” and refers to which insurance company is providing this specific coverage type. If you see an A in this column, it refers to the insurer identified as Insurer A in the Insurers Affording Coverage section.
- Addl Insd: This stands for “Additional Insured.” This will indicate whether the Certificate Holder is listed as an Additional Insured on the referenced policy. In layman’s terms, this states whether or not your client, or whoever you are sharing the COI with, is named as an Additional Insured. If so, this column will be marked with a Y or X to represent “yes”. If not, the column will remain blank or be marked with a N or N/A to indicate “no.”
- Subr Wvd: This indicates whether or not the right of subrogation (SUBR) has been waived (WVD) for Additional Insureds. If so, there will be a Y or X in this column to indicate “yes.”
- Policy Number: This one’s easy: it’s the policy number, and it uniquely represents a single policy. With Thimble, you can easily check your policy status by entering this number.
- Policy Effective Date: This is the date the insurance policy becomes effective. It needs to be before, or coincide with, the effective date of your business contract.
- Policy Expiration Date: This is the date the insurance policy expires, which needs to be on or after the termination of the business contract.
To fully protect your business, you want to make sure that your coverage:
- Began before you started the project
- Will continue past the end of your contract
If your coverage doesn’t span the entire period of your contract, you could be on the hook financially, should anything negative occur. Need an example?
- Let’s say you’re a hairstylist employed to create futuristic looks for the cast of your short sci-fi film. You had a valid policy that started before filming began, but reshoots have caused the original shooting schedule to be extended. During that time, your coverage lapsed.
Should you accidentally burn your star’s head while styling her hair, you could be made to pay the cost of any medical bills the star has as a result of this hair disaster. (So for your wallet’s sake, check those dates.)
- Limits: This section describes the individual policy limits for each type of coverage listed. For example, the general liability line will include the limit for each occurrence, third-party bodily injury, medical expenses per person, property damage, and personal and advertising injury. It also provides for the investigation, defense, and settlement for these claims, even if the claims are determined to be false, frivolous or fraudulent!
Important note:
All policies include limitations and exclusions. A COI does not display all terms and conditions of the policy; it merely provides evidence that coverage is in force. To determine the full scope of coverage, ask for a copy of the policy, or talk to the producer.
- Description of Operations / Locations / Vehicles: This section will outline any specific operations, locations, or vehicles this COI refers to.
Finally, we reach the end of the document. This section reveals who the Certificate Holder is and seals the COI with a signature from your insurer.
- Certificate Holder: The COI shows to a third party that the named insured has insurance. The third party is requesting such evidence so the third party will be listed as the certificate holder. In this case, you would be the certificate holder because you are requesting the certificate.
- Cancellation: Bookending the COI is an additional statement of official text, which essentially states that the insurer will notify the Certificate Holder if your policy is canceled for any reason before the Policy Expiration Date listed. This only applies if the client is listed as an Additional Insured.
- Authorized Representative: This will feature a signature from an authorized representative who issued the COI. This is usually the producer who is able to provide such information.
Types of Certificates of Insurance
From liability to worker’s compensation, there are numerous types of COIs—making it crucial businesses maintain a diligent tracking process that assesses document legitimacy, adequate protection, and expirations.
Certificate of Liability Insurance
This should be reviewed not only to protect the project owner but to extend additional insured status to the project manager and possibly a lender. Reviewing certificates of liability insurance is a critical component of risk transfer from the project owner to a third-party vendor. One way of further ensuring that your third parties’ insurance coverage is adequate is to look for some of the following indications on the COI:
- Additional insured status extends to the right entities
- Description of the operations the vendor/subcontractor is working on
- Waiver of subrogation
- Coverage is “primary and noncontributory”
For a more accurate review of these coverage details, you should collect and review the insurance endorsements.
Certificate of Workers Compensation Insurance
This should be required and written per the applicable state statutes and laws.
Certificate of Auto Liability Insurance
This should be monitored for all vendor-owned, leased, non-owned, and hired vehicles.
Difference Between COI & Insurance
If one party wishes to confirm evidence that another party’s insurance is in place to cover any losses to property or bodily injury, that’s one thing. It might ask to see their insurance policy.
But another thing is when one party (e.g., “Real Estate Corp.”) hires the other party (e.g., “Paul the Plumber LLC”) for a project and requires that third party to issue a COI. As outlined above, the COI is a concise document containing all the pertinent details of an insurance policy in an easily digestible, standardized form.
More specifically, when Real Estate Corp. asks for Paul the Plumber to issue a COI, it is asking for the policy to be “endorsed” (aka “amended’) so that the policy can extend additional insured status to Real Estate Corp. Typically, the resulting COI will then include wording to the effect of “Real Estate Corp. is listed as an additional insured.” That way, if Real Estate Corp. gets sued due to an incident related to Paul’s work, they should also be covered by his insurance.
Conclusion
As a small business owner, the last thing you need is any unforeseen financial losses due to a lack or lapse in liability coverage. Once you have your COI, double-check it to make sure that reflects the actual coverage you have on your policies. This includes showing that your coverage:
- Starts and ends on the right date
- Legitimately insures your business
- Provides the type of coverage that’s needed
- Has a sizeable liability limit
You should expect a COI from others with whom you work, and if you’re performing services for your client, they’ll also probably expect a COI from you. Additionally, a Certificate of Insurance can help you earn your client’s trust, and secure more projects for your business.
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