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Why every contractor needs a certificate of insurance

Why every contractor needs a certificate of insurance

By Wil Chan
Jun 29, 2022
5 min read

When you’re a contractor, insurance isn’t just something that’s nice to have — it’s a requirement to get hired for most jobs. And it’s what keeps your business afloat after unforeseen setbacks.

Having insurance means that you — or your client — aren't shouldering all of the expenses in the event of injuries or property damage.

The ability to show proof of insurance is so important that it is often requested as a first-step prerequisite before anything else happens. If you’re a contractor, many clients will want to see your proof of insurance before letting you so much as pick up a hammer.

That’s where an easily accessible certificate of insurance for contractors (or COI) comes in.

What is a certificate of insurance?

A certificate of insurance is a document, either electronic or physical, which shows anyone you work with that you have a valid business insurance policy.

Companies or individuals you work with will request your COI to make sure they won’t get stuck with a large bill if something goes wrong. 

Most insurance companies issue certificates of insurance that meet standards set by a non-profit organization called ACORD. This is why COIs are sometimes called “ACORD certificates.” 

If you've had insurance for some time, you're probably familiar with the PDF version and may even carry a physical copy around with you.

Why insurance certificates matter to your customers

Customers will often request proof of insurance before signing a work contract with you to protect their financial interests. They want proof that your coverage limits would pay for potential damage.

Let's say a contractor renovating a hotel accidentally damages an important pipe while working on a bathroom, creating a huge mess. Because it's the contractor's fault, they would be held monetarily responsible for the incident.

Luckily for everyone involved, the contractor showed their certificate of insurance when first applying for the job. Without insurance, the contractor would have to cover the damages out of pocket – which could have devastated them financially – or the hotel would have to pay for it themselves.

By reviewing the contractor's COI at the start of their relationship, both parties walked away from the incident with their bank accounts intact. Insurance kept an accident from turning into a catastrophe, and the certificate proved the insurance was valid.

What does ‘additional insured’ mean?

Clients or owners often ask contractors to provide a COI with the client listed as “additional insured.” General contractors may also ask subcontractors to name the general contractor as additional insured on the subcontractor’s policies. So what does additional insured mean? 

Additional insured refers to any party other than the primary insured who is also covered by the policy. Someone who is additional insured is also listed on a COI. If something goes wrong, the additional insured can also make a claim against the policy holder’s insurance directly. 

Let’s say you’re a general contractor at a job site where the project owner asks to be listed as additional insured on your contractors insurance. If a visitor to the job site trips on your equipment and gets injured, they could sue you and the project owner. In this case, as the additional insured, the project owner would also be protected by your insurance policy.

How do I get a COI?

Any insurance policy you take out as a contractor should offer instant, easily accessible proof of insurance. 

Unfortunately, the insurance industry has been slow to catch up to this vital need. Many companies leave their customers with no choice but to order their certificates of insurance by phone, sometimes waiting weeks for their certificates to arrive. 

If you're a contractor who needs proof of insurance immediately accessible during business hours, you know this delay is inconvenient.

Similarly, some legacy insurance companies may charge anywhere from $7 to $15 per certificate. This can add up quickly and painfully if your line of work involves sending out large numbers of contract bids. There can also be charges levied for each additional insured.

However, if you’re a NEXT customer, all you need to do is log in to your account on our website or mobile app and your live certificate delivers you the proof of insurance you need instantly, online — for free.

You can also email your live certificate to anyone you need or share a link to the certificate via email, text or social post. You can always access your contractors certificate of insurance and add additional insureds whenever you want. There's no waiting for anyone, no printing anything off, and definitely no fax machines.

NEXT makes getting covered simple

NEXT’s mission is to make protecting your contractor business as simple and painless as possible.

Our process is 100% online, so you can get the coverage you need in one quick visit. 

You can complete our application, see policy options, buy coverage and get your live certificate of insurance in less than 10 minutes.

Get your free instant quote today.

Why every contractor needs a certificate of insurance

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About the author
Wil Chan is a content writer at NEXT and has been a professional writer for more than ten years. His work has been featured in publications including Forbes and Greatist. He has run a freelance business since 2016 and feels passionate about helping self-employed people in all industries succeed.
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