Certificates of Insurance are documents issued to show that the named person or business has an insurance policy in force at a particular point in time.
Also called, “Proof of Insurance,” an example is the Auto Identification Card most of us carry in our vehicles to show evidence that we have auto insurance. It shows who owns the policy, the type of policy, what it covers, the insurance company writing the policy, the insurance agent who represents that company, and policy dates.
For businesses, certificates are generally required by contract: leases for space or vehicles, mortgages or other loans, construction contracts, and even purchase orders. One or both parties agree to provide certain insurance coverages, under specific terms, and with insurance companies having financial stability.
They agree to provide copies of the policies or Certificates evidencing the coverage is in place before the work of the contract can begin.
Although certificates are not legal documents, and cannot amend the insurance policies they represent, they can be important in a number of ways.
For one, the viability of the insurance company being shown as the carrier. A number of national rating agencies rate insurance companies on their financial stability and claims-paying ability. At least one such rating agency has a free online look up.
For another, the name of the insurance agent is on the certificate. They can often assist with questions. Also found on the certificate are the limits of liability. That means, how much insurance is available for any one claim, or in total for the policy year. In addition, even evidence of an expired policy can be valuable, because sometimes claims aren’t known immediately, and an older policy may be called into play.
Business rely on Certificates to keep commerce flowing. Lack of certificates, properly vetted, keeps mortgages from closing, delays car purchases and keeps deliveries from being made.
Properly vetted? What difference does it make if the Certificate’s coverages as evidenced don’t match the requirements of the contract? Usually none, until something goes wrong and a claim is brought.
Here are just some of the problems inadequate coverage, or inadequate insurance companies, can create:
- the coverage may not have been purchased
- the insurance company may not have the financial resources to pay the claim
- the extensions of coverage intended to protect both parties to the contract may be missing or inadequate.
Reviewing certificates for compliance with contract terms may assure proper coverage is in place when a claim occurs.
Having a process for tracking certificates of insurance is a compliance management tool that can be an important part of a financial management program for businesses of all sizes. It’s important that the reviewer of the certificates be an insurance risk management professional who understands contracts and is knowledgeable in insurance coverages.
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