Business owners, it’s time to open up your file cabinet. Here’s one more piece of paperwork to add to your stash: a certificate of insurance (COI).
And it’s not just any piece of paper (or electronic file). This one-page document can do quite a bit for your business.
If you’re not familiar with it, a certificate of liability insurance is an official document that’s provided by your insurance company. It proves to potential customers and other organizations that your business is insured.
It also can outline the type of liability coverage you have (for example, general liability, professional liability, and workers compensation insurance), as well as provide contact information for your insurance company or broker.
Now here’s the million-dollar question. Why is a certificate of liability insurance so important? After all, don’t you have enough paperwork on your hands?
It turns out, a certificate of insurance can be just as important as a trademark document or your incorporation documents. It can help you meet legal requirements on the job, get hired for more projects, obtain commercial leases, secure business loans, and much more.
Here are 5 of the top reasons business owners should request a certificate of insurance, plus easy instructions for how you can get your COI if you’ve purchased a business policy through Simply Business.
The bottom line? Usually people don’t want to hire contractors and other professionals who are uninsured. It leaves them financially at risk if there’s an accident or loss. After all, without an insurance company to back the claim, they’ll likely have to pay for medical bills, lawsuits, or property damage out of their own pockets.
In order to secure a new contract, particularly for a larger, more established company, most contractors and other professionals need to show a COI. Here are a few common situations where business owners may need to obtain and present a COI before getting new work:
A cleaner is vying for a regular cleaning job at a large commercial building when the company requests proof of general liability coverage.
An electrician is bidding for work to install the electrical system for a new apartment building. Before getting hired, the general contractor requests proof of workers compensation, as well as general liability insurance.
A florist is discussing regular ongoing work providing arrangements at a wedding venue. The venue owner asks for a certificate of insurance that proves liability coverage.
A Pilates instructor is hoping to teach classes at a new gym, but the gym’s owner asks for proof of insurance coverage before starting work.
A hair stylist wants to rent a chair at a popular salon. Before signing a contract, the salon’s owner requests proof of liability coverage via a COI.
As you can see, contractors and vendors need to present a certificate of insurance in all types of industries before they are hired. Otherwise, they leave business owners vulnerable. Here’s a hint: If you’re a freelancer, contractor, or a vendor bidding for a job, and the hiring manager doesn’t ask for proof of insurance, ask them about it.
It’s wise to be skeptical of any business owner who doesn’t consider their liability when they’re hiring others for work.
If you’re like many business owners, your location is key to performing your job. Hair stylists need a salon. Clothing vendors need a storefront. Photographers need a studio. But in order to get a storefront or studio, you first need to be approved for a commercial lease.
Once you find your ideal location and apply for a lease, a commercial landlord will probably request proof of insurance coverage. Having your certificate of insurance on hand can easily help take care of that requirement.
If you have employees, you also may be required to provide proof of workers compensation. This is just another way for landlords to protect themselves, as they don’t want to be on the hook to pay for your employee’s medical bills and ongoing care if an accident happens on their property.
For example, let’s say you’re an independent dog trainer who is renting space at a local pet supply store. Because your business has been thriving, you hired a junior trainer to support the workload. One day, a dog bites your employee, sending him to the emergency room for a major, potentially life-altering injury.
Fortunately, because you have workers compensation, your coverage can help pay for your employee’s emergency room treatments, any surgeries, and ongoing care. The pet store will likely not be liable, even though the accident happened on their property.
In short, a certificate of insurance helps ensure that you have adequate coverage that mitigates a landlord’s risk for damage while you’re renting their property. It’s a way landlords protect themselves and make sure they’re renting their property to high-quality, professional tenants.
Lenders don’t want to finance business owners who are at risk. If they do, they may not get the money they lent back in full. The whole thing could be a major — and costly — hassle. That’s why most lenders, including the Small Business Administration (SBA), require proof of insurance during the loan application process.
Your best bet is to secure coverage before you start the loan application process. Here’s a quick guide for getting a small business loan the easy way. Whether you go through a bank, the SBA, or seek independent funding through an angel investor, you probably need to protect your business with insurance.
Here are the types of insurance you should consider buying before nailing down a loan:
General liability insurance: This type of coverage can help pay for accidents, injuries, and property damage that happen on the job. General liability coverage is important for most business owners, but especially if you work in an accident-prone industry, like construction, manufacturing, or even if you clean, repair, or install expensive items.
Professional liability coverage: Also known as errors and omissions insurance, professional liability coverage can cover you if you’re accused of copyright infringement, libel, or slander and need to hire legal support to defend yourself.
Workers compensation insurance: If you have employees, chances are, the law requires you to carry workers compensation. This type of coverage helps pay for an employee’s medical bills and ongoing care if they’re injured on the job.
Remember, insuring your small business is a wise move. Besides giving you peace of mind, it can give lenders and investors confidence that your business will remain financially stable. With liability insurance, your business is less likely to go under if you face a major claim.
Some professionals, including real estate agents, general contractors, and barbers are required to carry up-to-date professional licenses before they can conduct business. The requirements for obtaining a professional license can vary, depending on the type of work you do and the state you work in. For example, most electricians must complete training, pass an exam, and execute apprenticeship hours before obtaining their full professional licenses.
When applying for a license, however, many organizations have the same requirement: proof of business insurance. That’s because professional and trade organizations don’t want to be held accountable for licensing someone who’s uninsured.
They’re also proponents of safety and quality within their respective fields. Having insurance coverage is just one way to demonstrate trust and reputability. A professional organization is much more likely to back a business owner with insurance than one without.
If someone asks you for an ID, you can show them a driver’s license. If you need to pass on your address and phone number, a business card often does the trick. Sowhat happens if you’re asked about your business insurance? That’s another way a COI can come to the rescue.
Think of a certificate of insurance as a “quick guide” to your policy documents. Instead of reading through pages and pages of paperwork, your client can often get all the key information they need right from your COI. For example:
Emailing an electronic copy or handing your customer a printed copy can save you both a lot of time so you can get to work.
If you’ve purchased business insurance through Simply Business in the past, we have great news. It’s incredibly easy — and fast — to request a COI today. All you need to do is fill out this short online form. To do so, you’ll need the following information on hand:
Within just 24 hours during the business week, a member of our team will send you a copy of your certificate of insurance. If you request a COI on a weekend or holiday, it may take until the next business day.
We’re proud to offer a fast turnaround time for this important document. After all, we know a certificate of insurance is the first step toward protecting you and your business, signing a lease, securing a loan, and much more.
And even if no one is requesting proof of insurance from you currently, it’s a good idea to get a copy of your COI today. After all, you never know when you may need to present it. It’s one of the best ways you can demonstrate to clients, landlords, and others that you’re professional, trustworthy, and financially stable.
Whether you remodel homes, trim hair, or DJ parties, you rely on certains tools and gear to do your best work. While each type of business has its tools of the trade, there are some that you’ll find nearly all small business owners using — from accounting software to mobile phones to business bank accounts.
You can add certificates of liability insurance to that list. You may not reach for it as often as your favorite hammer or trusty scissors, but having it when you need it can offer advantages for you and your customers.
I earned a B.A. in Journalism from the University of Wisconsin at Madison (go Bucky). After realizing my first job might involve carrying a police scanner at 2 am in pursuit of “newsworthy” crimes, I decided I was better suited for freelance blogging and marketing writing. Since 2010, I’ve owned my freelance writing business, EST Creative. When I’m not penning, doodling ideas, or chatting with clients, you’ll find me hiking with my husband, baby boy, and 2 mischievous mutts.
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
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.