Insurance Certificate Explanation
Insurance certificates are commonplace among business transactions, yet many business owners are confused as to what the certificate truly means. An improperly executed certificate can cost either business involved in the transaction a lot of money and can involve the issuing insurance agency in a professional liability lawsuit as well. You can better avoid common certificate problems by understanding their functions and limitations.
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Purpose
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The general purpose of insurance certificates is to allow businesses that are working together to know what kind of insurance coverage the other has. For example, a business holding a meeting at a public hall may need to provide the hall with a certificate of insurance to show that it is properly insured against potential losses that might occur at the hall. Businesses are generally more willing to take risks on each other when they know that adequate insurance is in place.
Information on the Certificate
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The insurance industry standard certificate is called the ACORD 25 form. This form contains spaces for various policy information, which the insurance agency or company fills in accordingly. The information on the ACORD form includes the name, business location and phone number of the insured business as well as the issuing agency, the names of the insurance companies represented on the form, the types of coverage in force, and the appropriate policy numbers, effective and expiration dates and coverage limits.
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Additional Insured
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In most cases, the ACORD forms are for informational purposes only and do not afford the business receiving the certificate any rights under the represented policies. In other words, just because you receive a certificate doesn't mean you can make a claim against the listed policies. For additional premiums, the insured business may request that another business become an additional insured on the policy, so that it can make a claim if necessary. If this happens, the certificate will state that the certificate holder is an additional insured.
Limitations
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Because the certificate is not an insurance policy or contract between the insurance company and the business receiving the certificate, the information on the certificate does not actually change the insurance policies listed on the form. Therefore, if the form contains wrong information, the business receiving the form may believe there is insurance protection in force when there may not actually be. For example, a certificate may testify that general liability coverage exists up to a $1 million limit, when the policy actually has a maximum limit of $500,000. Similarly, the certificate may say the certificate holder is an additional insured, but if the policy was not endorsed to include that information, then the holder has no rights under the policy. There is great room for error with insurance certificates.
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References
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