Understanding how Certificates of Liability Insurance work is important for small-business owners who want to sign new contracts with clients.
Some times also called a Proof of Insurance, the insurance certificate is a one-page summary of a policy. It outlines the main areas of coverage, coverage limits, and your deductible. So what does this have to do with signing contracts?
Closing the Deal with a Certificate of Liability Insurance
You've submitted a bid for an IT project and the client decides to hire you. Before they’re willing to sign anything, though, many clients require an IT contractor to show them proof of insurance. You might have to attach your certificate to the contract or email a copy to the client.
From a client's perspective, an insurance certificate is important for two reasons. First, because it offers proof that you’re covered by business insurance. Typically, clients want IT contractors to have E&O Insurance and will ask to see your certificate to make sure your coverage meets their minimum requirements. When they see you have E and O coverage, clients know that, in the event of a data breach or another problem with your work, your business will have the financial wherewithal to compensate them for lost profits.
Secondly, a client might need to file a copy of your certificate with their own insurance provider. Many insurers ask customers to keep a record of the insurance policies of major vendors or contractors they work with.
What to Do if You Don't Have Insurance, But Need it for a Contract
This is a common problem for many of our customers. They don't have E & O Insurance (or don't have enough), but they're on the verge of signing a contract and need to get insurance ASAP to make the deal official.
If you face this situation, there are two things to keep in mind:
- You need to find an insurance company that can deliver a Certificate of Liability Insurance quickly.
- Your policy still needs to suit your business and your budget.
In other words, you need insurance quickly, but don't want to make a rushed decision. That's particularly important for E and O Insurance, because you don't want to switch insurance carriers later on.
The best way to cover professional liabilities is to buy one policy and renew it throughout the life of your business. If you switch insurance carriers, your new Errors & Omissions policy won't cover liabilities from old contracts. If an old client sues you, a new policy might not pay for those legal expenses.
When it comes time to purchase an E&O policy, find a provider that specializes in IT and tech liabilities and can send you a certificate quickly.
Contractor Tip: How to Add an Additional Insured
If you've hired independent contractors or subcontractors to help on a project, you may need to add them to your insurance policy.
To add these "additional insureds," you'll have to contact your insurance company and probably pay a small fee. After this you can request a new Certificate of Liability Insurance that lists your subcontractors.
If you're working as a general contractor coordinating a large project, your subcontractors might also hire independent contractors. In this case, it's standard practice to require your subcontractors to add their ICs as additional insureds on their policies.
A Last Word on Certificates of Liability Insurance
Whether you need E and O for a contract or General Liability Insurance in order to sign an office lease, Certificates of Insurance are often the last step you need to take care of before you can sign a legal agreement.
At TechInsurance, we work with many IT contractors who need insurance ASAP in order to sign a contract. We specialize in getting you a certificate quickly and helping you find an IT-specific insurance policy. Fill out our online application, and you'll usually receive free insurance quotes in less than 15 minutes.