Why Are Certificates of Insurance Important?

by Marie Huntington ; Updated July 27, 2017

A certificate of insurance is a document that confirms that an insured party has purchased insurance coverage. It's typically requested by the clients of the insured. The insured is the person or entity who has bought the insurance from an agent of the insurance company. It is issued to the insured's client by the insurance company; the document is proof that the insured party has properly been insured under a particular insurance policy. It includes the name of the insurance company and the name of the insured. Also, it provides the policy number, policy coverage period, the insured’s address, and coverage types.

Purpose

A certificate of insurance is a document that provides verification to third parties that an individual or entity has insurance coverage. Usually, third parties include any person or company that performs services for the insured or possesses the insured’s property. Additionally, the document illustrates that the insured has a certain amount of coverage.

Proof of Coverage

The certificate shows the particular insurance policy and its limitations. It is not a replacement of the actual policy. However, it provides a general overview of the terms of the contractual specifications of the insurance coverage. The insurance coverage offers the insured protection from liability claims. However, when someone files a claim against the insured because of a specific incident, the incident must have taken place during the policy period. The policy period is the actual time period for which the insured has purchased coverage.

Types

A certificate of property insurance describes the property covered by the insurance and the coverage limitations. General liability insurance certificates provide coverage when there’s a claim made against the insured. This certificate may offer information relating to an excess policy. Workers’ compensation certificates show evidence of an employee’s or contractor’s insurance coverage for work-related incidents. Certificates of insurance for automobile liability detail the insurance coverage for a certain automobile category.

Liability Coverage

Depending on the type of coverage, the policy may provide liability coverage for fire damages on the insured’s property. Payment for fire damage occurs when the insured is legally liable for the damage. An insurance policy may cover medical expenses for anyone who’s injured on the insured’s property. Automobile coverage policies offer compensation for third-party injuries relating to an accident between the insured and the third party. When an insurance policy includes excess liability coverage, it’s an extension of coverage in addition to the limits of the general coverage.

Warnings

The certificate of insurance should conform to the stipulations in the contract between the insurance company and the insured. This may prevent any misunderstandings of coverage.

The insured should keep track of any coverage cancellations that may have been misread by the contract and the particular insurance policy.

The contract’s liability limit must correspond to the liability limit stated on the insurance policy.

About the Author

Marie Huntington has been a legal and business writer since 2002 with articles appearing on various websites. She also provides travel-related content online and holds a Juris Doctor from Thomas Cooley Law School.

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