Certificates Of Insurance: What They Are & Why They Are Important

Notice the use of the word “properly” in the title of this article. This is important because if you make a small mistake in this area, you won’t likely find out about it until your audit and by that time it may be too late for you to go back to your sub to either get the mistake corrected or to deduct or withhold the proper amount to recoup your cost. Once you’ve paid your sub in full, you lose leverage in these situations unless the sub continues to do work for you. The end result is that you could be out of pocket for thousands of dollars in unnecessary and unexpected expenses.

So what is a certificate of insurance anyway? It’s nothing more than a standard form used by the insurance industry that provides a brief summary of coverage as of the date that the certificate is issued by an insurance agent. It indicates information such as policy type, limits, effective and expiration dates, name of insurance carrier, name of insured, name of insurance agent, signature of authorized insurance agent, and name of certificate holder. Most of the cetificates will follow the standard industry format that’s on this screen shot. However, some insurance carriers will issue certificates on their own form but they should include the same information.

The certificate holder is the person who requests the certificate. In this case, it would be you, the builder.

The certificate of insurance is only a valid representation of coverage as of the date it was issued. There’s no guarantee that coverage will continue. For example, the policy could be cancelled the next week if the sub fails to pay his monthly premium.

Also, the insurance carrier or agent that issues the certificate is not legally required to notify the certificate holder if the policy is under a notice of pending cancellation or if it actually cancels. Notice that the language indicates that the issuing company will endeavor to mail 10 days written notice to the certificate holder but failure to do so will impose no obligation or liability on the insurance carrier or the agent. The key phrase is “endeavor to” which does not make it a requirement. Its been my experience that most insurance agencies won’t actually mail out the notice of cancellation to the certificate holder.