What is a Certificate of Insurance?

Whether you're launching a new business, hiring contractors, or signing a commercial lease, you'll inevitably encounter a request for a Certificate of Insurance (COI). This seemingly simple one-page document is actually one of the most critical pieces of paperwork in modern business operations.

In fact, according to a 2021 survey by the Insurance Information Institute, 90% of businesses reported requiring COIs from their service providers to mitigate liability risks. That's nearly universal adoption across industries.

But what exactly is a COI, when do you need one, and how do you read all those confusing sections and codes? This comprehensive guide will answer all your questions and equip you with the knowledge to confidently navigate certificates of insurance.

What is a Certificate of Insurance?

A Certificate of Insurance is a standardized, one-page document that provides proof of your business insurance coverage. Think of it as a snapshot or summary of your insurance policies—it shows the essential details without requiring you to share your complete policy documents.

The most commonly used form is the ACORD 25 Certificate of Liability Insurance. ACORD (Association for Cooperative Operations Research and Development) created this standardized format in the 1970s to bring uniformity to an industry where each insurer previously used their own unique forms.

What Information is on a COI?

Every Certificate of Insurance includes the following critical information:

• Named Insured: The business or individual who owns the policy
• Insurance Producer: The agent or broker who issued the certificate
• Insurance Companies: The carriers providing coverage (with NAIC identification numbers)
• Policy Numbers: Unique identifiers for each insurance policy
• Coverage Types: General liability, auto liability, workers' comp, etc.
• Policy Dates: When coverage begins and expires
• Coverage Limits: Maximum amounts the insurer will pay for covered claims
• Certificate Holder: The party requesting proof of insurance
• Additional Insureds: Parties who have been added to the policy for protection
• Description of Operations: Project details, locations, or special requirements

Why Certificates of Insurance Matter for Your Business

COIs serve two fundamental purposes in the business world:

Top Industries Requiring Certificates of Insurance

When You Need a Certificate of Insurance

Understanding when COIs are required can save you time, money, and potential legal headaches. Here are the most common scenarios:

1. Hiring Contractors and Subcontractors

Before any contractor sets foot on your property or begins work for your business, you should request their COI. This protects you from being held liable if they cause property damage, injuries, or other losses during their work.

2. Bidding on Projects and Contracts

If you're a contractor or service provider bidding on projects, submitting a COI with your proposal is often mandatory. Clients want assurance that you have adequate coverage before awarding you the contract. In many cases, insufficient insurance limits can disqualify your bid entirely.

3. Leasing Commercial Property

Nearly all commercial landlords require COIs before signing lease agreements. This proves you have liability coverage for potential issues like fires, slip-and-fall accidents, or property damage. Most leases also require you to list the landlord as an additional insured on your policy.

4. Partnering with Other Businesses

When entering joint ventures, vendor agreements, or business partnerships, companies routinely exchange COIs. This mutual verification ensures all parties maintain proper protection, reducing risk for everyone involved.

5. Event Venues and Municipal Projects

Hosting an event at a rental venue or performing work for a city or municipality almost always requires proof of insurance. Event venues need protection from liability if attendees are injured, while municipalities require COIs to shield taxpayers from contractor-caused damages.

6. Managing Subcontractors

If your business regularly uses subcontractors, you need to collect and maintain COIs from each one. During year-end insurance audits, your insurer will require these certificates as proof that your subs maintained their own coverage throughout the policy period.

Visual Guide to the ACORD 25 Certificate Form

Now that you understand what COIs are and when they're needed, let's examine the actual document. The ACORD 25 form follows a standardized layout that's used across the entire insurance industry. Below is an interactive visual guide to help you identify and understand each section.

How to Obtain a Certificate of Insurance

Getting a COI for your business is straightforward and typically free of charge. Follow this simple process:

Validating Certificates of Insurance

If you're the party receiving a COI, proper validation is essential to protect your business. Here's your verification checklist:

Essential Validation Steps

1. Verify Current Dates: Check that policy effective and expiration dates show current, active coverage
2. Confirm Named Insured: Ensure it exactly matches the business name of the company you're hiring
3. Review Coverage Limits: Verify limits meet or exceed your minimum requirements
4. Check Additional Insured Status: If required by your contract, confirm you're listed in the description section
5. Look for Required Endorsements: Verify any waivers of subrogation or special endorsements you requested
6. Verify Form Version: The current ACORD 25 is dated 2016/03
7. Contact Insurer Directly: Call the insurance company or broker listed to confirm the policy is active and hasn't been cancelled

Best Practices & Common Mistakes to Avoid

Certificate Holder vs. Additional Insured: Know the Difference

This is one of the most commonly misunderstood aspects of COIs, and the distinction is critical:

Best Practices for Managing COIs

• Always request COIs before work begins—never after an incident occurs
• Create a tracking system for all COIs with expiration date reminders
• Verify directly with insurers rather than relying solely on the certificate
• Request updated certificates immediately when policies renew
• Keep organized digital records of all vendor and contractor COIs
• Review coverage limits annually to ensure they keep pace with project values
• Train your team on what to look for when reviewing COIs
• Never accept expired certificates—insist on current documentation

Common Mistakes to Avoid

Most Common COI Management Errors

 

The Cost of Not Properly Managing COIs

Failing to properly request, verify, and maintain Certificates of Insurance can have severe consequences:

• Financial Liability: Your business could be held responsible for damages caused by uninsured contractors—potentially hundreds of thousands of dollars
• Contract Breaches: Many contracts require proper COI documentation; failure to comply can result in termination
• Legal Exposure: Inadequate verification can expose your business to lawsuits and legal fees
• Insurance Issues: Your own insurance rates may increase if your carrier discovers you're not properly vetting subcontractors
• Reputation Damage: Poor risk management practices can harm your business reputation and cost you future opportunities
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