Certificates of Insurance: Why Your Small Business Shouldn’t Be Without Them
Small business transactions without certificates of insurance pose a big risk to both businesses involved. Just as you wouldn’t plan expensive travel plans without travel insurance or buy a new car and not have it insured; it’s equally unwise to enter into a business transaction with someone else and not insure your interests. Learning more about insurance certificates and how they can protect your small business is an essential step towards protecting the existence of your business.
What Are Certificates of Insurance & Why Are They Important?
A certificate of insurance (COI) is a document that proves insurance coverage. When it’s originally created, the COI outlines the dates of coverage and what is covered by it. The company that takes out the COI keeps it on file so it can be made available for reference or when creating business transactions with other companies. COIs protect a business from liability and loss that can be incurred when dealing with another business. For example, if the ABC Floral Shop needs to hire a temporary driver for the busy season, they will ask the temp agency to see their COI. The COI protects the floral shop in the event the temporary driver has an accident while working for them.
Which Businesses Should Be Concerned About Insurance Certificates?
Just about any business that works with or contracts out to other businesses or individuals should have a COI to cover any possible liability situation. One devastating, uninsured mishap would be all that’s needed to ruin a thriving small business and possibly the owners or investors as well. Businesses that hire or contract out to anyone need this insurance coverage. For example, if a thriving small business decides to throw a big customer appreciation barbecue and hires a local catering company to supply the food, a COI must be obtained from the catering company. This protects the business from liability if one of the catering company employees accidentally harms a customer or guests at the affair end up with food poisoning. Vendor credentialing services can be extremely helpful to a small business by authenticating the credentials of the catering company or any other vendor.
How Do They Work?
COIs provide a small business with all the information needed regarding what’s covered in the transaction and what’s not. Seeing the COI beforehand gives the small business an opportunity to discuss the coverage before entering into a contract with the other company. Examining the COI beforehand should be a routine part of pre-transaction business. If certain situations aren’t covered by the COI, then you’ll know to negotiate with the other company or search for someone else to work with.
How Can They Help?
COIs can help you grow and expand your business by minimizing risk and potential loss. If you will need to hire contractors on a regular basis, or are a business that hires contractors out, having comprehensive COIs can mean the difference between getting the job or not. If a company decides to hire cleaners to come in and clean their office facility each night, the contractor with a COI is likely to get the job over a contractor without one. Hiring a contractor with a COI helps to keep the business secure against any breakage, theft or damage incurred by the cleaning company.
Having an effective system for insurance certificate management can help you maintain effective business operations while protecting the interests of both parties. Whether your business has been in operation for months or years, having foundational knowledge about certificates of insurance can be one of the building blocks that helps your business grow. When used appropriately, it safeguards all your hard work, as well as the future of your business.
Have you made sure that you and your business are protected by purchasing a certificate of insurance? Share your small biz diamonds in the comments section below.