What is a Certificate of Insurance for Contractors
If you’re working as a contractor, most employers will require you to take out a contractor’s liability insurance policy, as it’s a normal requirement to carry out your business operations. Once you have purchased an insurance policy, you must get proof from your insurer (insurance company) that you can show to your client when undertaking the job. This proof is provided in the form of a Certificate of Insurance, a document issued by the insurer usually on an ACORD 25; however, many insurers are issuing certificates of insurance on their own letterheads. A certificate of insurance for contractors verifies the existence of the insurance policy on behalf of the certificate holder (contractor).
Besides serving as a proof of insurance policy, a COI (Certificate of Insurance) also include the key aspects and terms & conditions of insurance coverages. Whenever you go to get a job, you show your COI to the clients to satisfy them that you have coverage that can cover any damages or bodily injuries at the worksite. A COI helps you secure clients more efficiently as most hirers prefer insured contractors to get their job done.
Why is Certificate of Insurance for Contractors Important
Contractors need a COI, especially at those workplaces where the risk of liability claims regarding property damage or bodily injuries is high. Without the COI, contractors may find it difficult to win contracts as many companies, and individual clients check the contractor’s COI at the time of hiring. Sometimes, the hiring companies or individuals directly confirm the certificate of insurance from the insurance company the contractor has taken out the policy. However, most contractors are required to show their COIs to the client.
In simple words, a contractor’s certificate of insurance demonstrates the level of liability coverage you have, what conditions it covers, and to who it was issued.
Risk transfer is a popular term these days in the insurance community and basically, it transfers the risk and exposure from the hiring entity to the performing contractor. In other words, if the contractor is responsible for the damage, why should the employer face the exposure for liability and additional premiums to cover the work of others.
What Liabilities Does a Contractor’s Certificate of Insurance Cover
A contractor’s certificate of insurance covers your business from a wide range of general liabilities arising out of a bodily injury or property damage caused by your contractor, you, or your employees through the course of their activities. There’s a myriad of ways in which your business operation can cause bodily injury or property damage on the project site. For example:
- Proper damages result from paint spilling or over-spraying.
- The heat from a welding torch sets fire to the property.
- Slip & fall accidents at the worksite result in bodily injuries.
Besides general liabilities, a contractor’s certificate of insurance covers several other different liability coverages that could be relevant to your business, such as:
- Product & Completed Operations Liability coverage.
This coverage covers liabilities regarding a third-party bodily injury or property damage once your business operations are completed.
- Auto Liability coverage
Auto liability coverage protects you from claims filed against you regarding a third-party bodily injury or property damage caused by your insured business vehicle.
- Pollution Liability coverage
As the name implies, pollution liability protects your business from third-party property damage or bodily injury caused by the release of hazardous chemicals or toxic materials into the ground or water supply as a result of your business operations.
- Data and Privacy Liability Coverage
If you collect any sensitive information about your clients, data and privacy liability coverage will protect you if you experience a data breach or cyber-attack.
What type of Claims Does a Contractor’s Certificate of Insurance cover
Not all general contractors are associated with the same type of business. General contractors are a broad-range category that includes various skilled professionals, such as landscapers, plumbers, roofers, carpenters, welders, and electricians. The type of claims a Contractor’s certificate of insurance covers depends on the kind of work you do. Here, we’re going to list some common general contracts with their potential claims that a contractor policy can cover.
| Contractor Type | Most Common Claims |
| Plumbers | Water Damage |
| Roofers | Water damage, leaks |
| Carpenters | water system damage, drill/nail, plumbing, sheet rock |
| Landscapers/Snow removal | Injuries, BI, plumbing, trees |
| Painters | Overspray, paint spilling |
| Electricians | Fire damage, electricity damage |
| Welders | Fire damage |
| HVSC Technicians | Gas leaks or fire damage |
The cost of the claim depends on the nature of the claim. For example, a paint spilling claim has a relatively lower cost than fire damage. Generally, the claim cost is likely to be lower if you work on a new construction or installation project than any renovating or repairing project.
What Details a Certificate of Insurance for Contractors include
A typical contractor’s COI includes the following information:
- Contractor’s Name
Your COI contains your name (as a contractor) to verify as proof that the insurance policy belongs to You. It’s the first thing your client check on the COI.
- Your Business Name and Address
Your business name and address in your COI help your client identify and contact You.
- Business Operations Description
This is the most important part of your COI. It describes the business operations you’re insured to carry out. The business description section allows the clients to ensure that you’re insured for the operations they want to hire you. It reflects what the insurance company thinks you’re doing. If you want to add or remove something from your business description in COI, you will need to get approval from your insurance company, which might also affect your insurance rates.
- Insurance Coverages and Limits
A typical Certificate of Insurance for Contractors includes all types of coverages with the required limits on your insurance policy. Generally, a COI lists all possible coverages of the contractor’s liability insurance and mentions limits in front of the coverages that you have in your policy. Certificate of Insurance also includes the conditions or occurrences where the coverages can be used. It also mentions the starting and expiry dates of the insurance policy.
- Description of Cancellation Process
A contractor’s COI includes a description of the cancellation process. It indicates that a notice of cancellation will be sent to the certificate holder prior to canceling the insurance policy before the expiry date. Experience shows this is not always the case.
- Name of Insurance Company/Agency/Broker
The name of the insurance company/agency/broker through which you have bought the insurance policy is mentioned in Your COI (certificate of insurance). Your insurer will be responsible for answering any questions on your behalf that may arise related to the COI.
- Name of Beneficiaries
A person who you named as your beneficiary of the policy’s coverage is mentioned in your COI.
How to Get a Contractor’s Certificate of Insurance
You can get Your COI from your insurer by simply following these steps:
- First, contact your client who is requesting a COI from you and get the details about the minimum coverage limits they want. Get the basic information of your clients, such as name, address, and tax identification number, as you need it for COI creation.
- Now call Your agency/broker, inform them about the minimum coverage limits, and request them to create a COI for You.
- Your broker will contact your insurer to ensure that your insurance policy meets the coverage limits.
- Once everything is set, your broker will create the COI and deliver it to you so you can show it to the clients.
During this process, your broker will inform you if you need any additional riders on the insurance policy to meet coverage needs communicated by the client. The whole process of obtaining COI can take a few days to weeks, depending on the expertise and skills of your broker/agent and how quickly they handle the necessary paperwork to create your COI.
How Much Does a Contractor’s Certificate of Insurance Cost
As issuing the COI (certificate of insurance) is normally a complimentary service provided by Your insurance company, you probably don’t need to pay anything to obtain your COI; however, there’s a growing tendency for insurers to charge from this as well as the clients that are hiring you.
When purchasing insurance, you can certainly ask your broker what they will charge so that you know what you’re going to face going in. You can change your broker if they try to charge a fee to issue COI. However, you may need to pay extra premiums if your current coverages don’t meet the requirements given by your clients.
