What Is a COI and Do I Need One?

By Danica Jovic

June 19, 2023

Most business activities come with a high degree of risk. To minimize it, companies or organizations may obtain a certificate of insurance (COI) from an insurance company, outlining the coverage they have and expected outcomes.

Aside from answering the question: “What is a COI?” this article discusses its importance and the types of COIs you can get.

What Is a COI?

A COI in business protects your company from specific occurrences defined in the terms of the insurance program. If you’re considering a partnership with another company, the COI also serves to give everyone peace of mind, as it represents reassurance that financial losses would be minimal should the collaboration fall through.

COI documents contain all the essential details of your insurance policy in an easy-to-digest format. This information includes the details of the protected parties, the types of losses covered, the dates during which the policy is effective, and policy limits.

Do I Need a COI?

There are several reasons organizations get and request COIs. These include: 

Proving Their Insurance Status

A business certificate of insurance proves to clients that the company in question is insured. A reputable company should always be insured, and having your COI ready is one way to maintain that reputation.

Outsourcing Protection

Hiring additional workers outside of your organization comes with various risks. COI compliance is vital here, as it prevents you from rendering your insurance coverage void, even if your contractor is at fault. Make sure to only create contracts that adhere to your COI and the contractor’s.

Reduces Liability

Examine the COIs from potential partners carefully: In some cases, you can transfer your losses to the other party if things go wrong, and if your COI is not watertight, it might be able to do the same to you.

Information Access

Lastly, a COI policyholder can obtain the information to prove its insurance status rapidly, saving itself lots of time and administrative snags.

Who Needs a COI?

COIs are generally required whenever one company cooperates with another. For instance, if you run a toy store and supply products made by third-party manufacturers, you need guarantees their coverage is good enough to protect you and your customers should something go wrong.

The same principle applies to running a bar: For example, if a brewery supplies you with bad ale, you need to make sure your COI or their insurance protects you if the potential injured parties decide to sue you for damages.

The number of COIs you need to ask for can be pretty high during the regular operation of your business. A bar, for instance, may require COIs both from product suppliers (such as breweries), as well as ancillary service providers, such as cleaning agencies, marketing firms, and even interior designers.

When you request a certificate of insurance for business, you’re not saying that you don’t trust your partners. Instead, you’re doing something that minimizes risk, and you should ask them to do the same. Even if you’ve worked with a company many times before, getting a COI is still a good idea every time you sign a new contract. This way, you prevent anyone from taking unnecessary risks.

What Is an Additional Insured?

There are three relevant entities in any certificate of insurance for a small business: The policyholder, certificate holder, and additional insured.

The policyholder is the entity that originally took out the policy. For instance, it could be a builder, or building company. The certificate holder is the person who requested the COI. This could be a subcontracting firm working with the builder, perhaps a plumber.

An additional insured is a business or entity that benefits from one of the signing parties’ insurance, but has not paid for it directly. This category of entities can make claims under the policy, even though it did not purchase it. 

To reduce risk exposure, certificate holders will often ask policyholders to provide the details of additional insured parties, or request to be named as additional insured on the policyholders’ document.

In some cases, COIs offer “blanket insurance.” These terms provide all third-party partners (as defined by the terms of the insurance document) with coverage, negating the need to manually add additional insured entities.

How Much Does a Certificate of Insurance Cost?

In most cases, the COI cost is zero. Insurers typically offer it as a complimentary service. If insurance brokers attempt to charge your for COI issuance, you may want to go with a different provider.

Be mindful that you may need to pay additional fees if you request policy changes to cover your new circumstances. As usual, the greater the coverage you have, the higher your premiums.

How To Get A Certificate Of Insurance

If you have a small-business insurance policy, how do you get a certificate of insurance? The answer is: Easily. Here are the steps you’ll need to take:

Step 1: Contact Your Client

If a client requests a COI, first ask them for their limits and minimums for the policy. You want to avoid sending over a COI that does not meet their requirements.

If you need to increase your premium, write down your client’s name, address, and tax identification number. Your broker can use this in negotiations with your insurer to come to an acceptable price.

Step 2: Call Your Broker

The next step is to call your broker and familiarize them with the policy requirements. In some cases, your premium will already cover your partner’s limits and minimums, so your broker will contact your insurer to provide the COI. However, if it doesn’t, the broker will ask your insurer for a quote on rider coverage for the length of the project. If the risk is high, you will have to pay an additional fee and take out a rider policy, which means extra paperwork.

Step 3: Receive the COI

The last step is to wait for the COI to arrive. Once you receive the printed certificate, you can send it to your client as proof of insurance and complete any pending negotiations or transactions before beginning work. 

While the process is easy to understand, you need to start it early. Obtaining a COI from your broker can sometimes take several weeks.

Types of COIs

There are three types of COIs that cooperating companies can apply for, depending on the nature of the task in front of them, and the underlying insurance product concerned.

Certificate Of Liability Insurance

Liability lawsuit costs and settlements can run into the millions. Therefore, all participating businesses should have insurance that covers the risks they might face. Liability insurance protects the policyholder, certificate holder, and any additional insured.

If you are requesting a COI from a third party, check that its insurance offers the right level of coverage and features, and whether additional insureds can be entities, too, not only individuals.

Make sure the COI includes a description of the operations your potential partner is working on. You need to confirm that their insurer covers it adequately for the type of work it actually does.

Lastly, check that coverage is primary and noncontributory. This means the policyholder’s policy will respond first in the event of a loss, even if there are multiple, overlapping policies all providing similar coverage, and don’t require you to contribute to the premium.

Certificate of Auto Liability Insurance

If you are working with a vendor that owns, operates, leases, or hires vehicles, you may want an auto COI. These confirm the partner company has sufficient coverage for your operational requirements.

Certificate of Workers’ Compensation Insurance

Lastly, you may require a certificate of workers’ compensation insurance, and you’ll need to check it’s written in line with the workers’ comp laws in your area. Workers’ compensation ensures that the policyholder has sufficient coverage to pay workers in the event of an injury.

How To Check COI Compliance

Companies check COI compliance via audits. The auditor must have a good understanding of endorsement terminology, insurance policies, contract requirements, and ACORD forms and standards.

COI non-compliance can be extremely costly, because compensation can run into millions of dollars. Therefore, firms must ensure they are fully compliant before proceeding with work.

COI Tracking

For large companies and those that work with many firms, COI tracking is critical. Many projects require a paper trail comprising hundreds of COIs. In most cases, project managers don’t have the time to manage all those documents, so they use software instead. The benefits include:

• Managing changes in project scope, conditions, and coverage over time across multiple vendors
• Detecting coverage gaps that might increase the risk of liability
• Improving productivity by dedicating fewer staffers to COI administration
• Automating notifications of coverage lapses

When Should You Ask for a Certificate of Insurance?

You should always ask for a certificate of insurance if a vendor does work that increases your liability. If you work with a partner, you may still be liable for losses (such as the injury of a colleague), even if they don’t occur on your property.

Always verify the COIs before asking the contractor to begin work. Don’t work with any entity that only provides verbal assurance, as this implies a misunderstanding of the terms and conditions of an insurance policy.

Wrap Up

So, what is a COI? The acronym stands for “certificate of insurance.” This is a mechanism businesses use to reduce their risk whenever they partner with a third-party entity.

When you ask for a COI, you verify that your vendor’s insurance policy is sufficient to meet your standards for risk mitigation. And when you supply a COI, you reassure partners that you can cover any losses that occur as a result of your work.