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How to Tell If You Need a Certificate of Insurance

6-minute read

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Allison Grinberg-Funes

Allison Grinberg-Funes

4 January 2022

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Being a business owner means fielding a ton of advice from others. Sometimes that advice is valuable. Other times, you may wish you hadn't asked.

So what happens when someone tells you, "Hey, you really should have a certificate of insurance"?

Do you really need one? As it turns out, you probably do. We'll review the six signs you likely need a COI for your small business and how to get one.

Let's go!

What is a Certificate of Insurance?

Curious to learn more about what a certificate of insurance (COI) is? We have a helpful article you can read here.

The 6 Signs You Need a COI

1. You already have insurance.

This one may seem silly — but trust us when we say that not every insured business owner can prove it! Can you believe that?

Don't be a business owner who can't show proof of their insurance coverage. If you have a policy, then make sure to download your certificate of liability insurance. This way you'll have it ready in case a customer or vendor asks to see proof of insurance.

2. You need to win your first customer.

Getting your first customer is a big challenge for small business owners. But once you get that first customer, it's easier to build your momentum.

Winning your first customer is usually difficult. That's because your customers don't know you yet. They aren't used to working with you and don't know they can trust your business to get the job done.

That's where a certificate of liability insurance can come in handy. Showing a potential customer proof of coverage can put them at ease. Having a policy means that if something goes wrong on the job, you're covered. In those cases, you can have help covering the costs from your insurance company.

The type of work your company does determines which risks you face. You could face claims of property damage, bodily injury, copyright infringement, cyberattacks, or more.

Some of your customers may not be new, but they may be hesitant to hire a small business that's not insured. In fact, they may even be required to work with companies that have proof of insurance. That's because some permits aren't approved without insurance coverage.

Showing a COI and having coverage means your customers likely won't have to fully pay out of pocket if something goes awry. That's because you took the step to protect your business. So they're likely to feel more comfortable hiring you.

3. You need to rent a space.

Similarly to customers, landlords also worry about potential risks. You may need to sign a lease for a work, office, or storage space. It's likely your landlord will ask you if you have insurance.

Showing your landlord your COI proves that you have a current insurance policy. The policy protects your business financially because it can help cover claim costs and legal fees.

It also protects your landlord. They likely won't be liable for covering those costs out-of-pocket. That's because your policy can help cover those costs.

4. You're applying for financial assistance.

Small businesses don't typically succeed all by themselves. Many get help from family, friends, or their communities. And of course, many also apply for financial assistance like grants or loans.

If you apply for financial assistance, a COI could come in handy. The issuing organization may ask you for proof of coverage. You could provide your certificate of liability insurance and move forward with your application.

Organizations often ask for proof of coverage. That's so they know that the money they're investing in you won't go to waste. For example, what if you received a loan to open a new storefront, then there was a fire?

Without liability coverage, you may have to pay for repairs out-of-pocket. The organization's money will be lost to the accident. But with a policy, these risks are perceived differently. The organization can see that if something happens, you're financially protected.

In this case, showing a COI can help your business appear to be a less risky investment.

5. You have fierce competition.

Do you offer a similar product or service as other businesses? Then it's smart to think of things that make you unique.

That's where a COI can help set you apart.

Potential customers know that there's a risk working with most businesses. A certificate of insurance can show them they're less likely to be financially liable. Customers can see that your policy helps to cover claims for potential incidents.

Now imagine your potential customer has a choice to make. They compare your business to a business without insurance coverage. Which of the two should they hire?

Working with the other company could put them at risk. Why choose an uninsured competitor when they could feel safe working with you?

Your certificate of liability insurance may seem like a small document, but it could make a big difference.

Many small businesses start off as sole proprietors. That means when they file income tax returns, their business and personal taxes typically are grouped together.

But as you grow, you may want to change your business's legal structure. After all, there are several to choose from. For an example, you could choose to incorporate as an LLC, an S-corporation, or other entity.

Whichever entity you choose, it’s a sign that you're ready to have insurance coverage. Registering your business's legal structure is exciting. But it also makes potential financial risks more real.

Having a policy can help assure your customers that you're likely covered financially in case of risks like third-party property damage, bodily injury, and more.

How to Get a Certificate of Insurance

Do you think you're ready to get a certificate of insurance based on what you read above?

Then it's time to learn how to get a COI and find coverage that works for you. Follow the steps below to find a policy that suits your business's needs.

1. Consider your business's risks.

It's important to know the risks you face so you can find the right coverage for your business.

First, consider all that could happen with your work that causes injury or damage. We don't like to think of these scenarios, but they're surprisingly common. In fact, 43% of small businesses surveyed reported they were involved in or threatened with a lawsuit in a given year.

Keep in mind — you don't have to be found at fault to suffer the consequences of a lawsuit. You still may be responsible for paying legal fees.

Make a list of all the potential risks you face so you can get a policy with the right amount of coverage.

2. Consider partners and/or subcontractors.

You may work by yourself now, but that may not always be the case. You may hire a subcontractor for a big project later on.

You can't control the actions of your subcontractors. That means they may put your business at higher risk.

For example, what if a subcontractor makes a mistake and the customer’s property gets damaged? It may not be your fault. But because the subcontractor works for you, you could be responsible for the repairs. Without a business insurance policy, those costs would likely come out of your pocket.

Thinking ahead of scenarios like this one can help you brainstorm. Then you can find a business insurance policy that fits your current and future needs.

3. Think of how your premium will fit into your business plan.

Insurance policy premiums are typically paid on a monthly or annual basis. The premium cost varies, depending on factors like where you work, what you do, how long you've been doing it, and more.

Consider how much money you may have to put toward your insurance coverage. If you have a business plan, then you can factor in your policy premium cost to your monthly or annual expenses.

4. Compare your options.

You've done your research. Now it's time to research and compare your coverage options. And price isn't the only factor to consider.

When comparing policies, look at your insurance provider and the potential coverage closely. Below are some factors to consider.

Policy premium cost

Cost is an obvious detail to account for when comparing your coverage options. Many insurance providers give you the option to pay your premium on a monthly or annual basis.

Which works better for your business based on your cash flow? Is there the incentive of a discount to pay for your premium annually?

The premium cost may be low, but recurring payments can add up, and you're responsible for your business's expenses.

To get started comparing your policy options for FREE, use our quote comparison tool here.

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Extent of coverage

How much will a policy cover you? Different insurance providers typically offer different limits for occurrences and claims made. The limit you choose (e.g., $1,000,000 per occurrence vs. $2,000,000 per occurrence) will likely impact your premium cost.

Policy flexibility

With these potential policies, will you have the ability to alter your coverage if you need to? For example, perhaps you get a quote based on your current business needs. Then six months down the road, those needs change, based on your company's growth.

How easy will the insurance provider make it for you to get in touch and adjust your policy limits?

Customer service employees can typically answer that for you.

Customer service

Does the insurance policy provider you're considering offer customer service? You may experience an accident, such as property damage or someone getting injured on the job. In those cases, making a claim is one more step in an already stressful process.

Choose a carrier that offers accessible customer service. That way, there are experts who can answer insurance questions you may have.

Be Prepared with a Certificate of Insurance

As business owners, the last thing we like to think about is what could go wrong in our day-to-day operations. Instead, we want to think about our goals and what could happen if we achieve them.

Unfortunately, we can't predict the future events that may impact our finances. That’s why getting business insurance coverage is smart. This way, you can ensure you're prepared for the unexpected.

Once you have a policy, you have proof of your coverage with your certificate of insurance (COI). Remember: This one document can help protect your business from unknown financial risks. At the same time, it can help you work toward your business goals.

Allison Grinberg-Funes

Written by

Allison Grinberg-Funes

I’ve told stories since I learned to talk and written since I could hold a pen. As a small business owner myself - I'm a freelance writer and yoga teacher - I love contributing to the entrepreneurship community in different ways (including writing for Simply Business!). When I’m not drafting articles for SB, I can be found on my yoga mat, perusing an indie bookstore, and writing (with my cat nearby of course).

Allison writes on a number of topics such as small business leadership, business structures, and employee training.

This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer

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