When you’re just starting out in the construction business, there are plenty of things to figure out: tools, labor, materials, and, of course, the business side of things. One of the first hurdles you’re likely to encounter is understanding certificates of insurance (COIs). These are not just bureaucratic formalities; they’re essential for protecting your business, your clients, and your team. Let’s break it down in plain English.
What Is a Certificate of Insurance?
A certificate of insurance (COI) is a document provided by your insurance company that proves you have the necessary insurance coverage for a specific construction project. It’s like a hall pass for your job site—you need it to get started. Most general contractors (GCs) or property owners will require a COI before allowing you to work on their project.
The COI outlines key details of your coverage, such as:
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Liability limits (usually starting at $1 million for accidental or property damage).
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Names of insured parties, including your company and sometimes the GC or project owner.
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Specific job-related coverage.
Each job will typically require its own COI, customized to meet the insurance requirements set by the project’s stakeholders.
Where Do You Get Insurance for Construction Projects?
This isn’t your regular car or homeowners insurance. You’ll need to find an insurance provider specializing in industrial and construction coverage. Options include national providers and local insurance companies. It’s important to shop around and find one that understands the construction industry and your specific needs.
Most construction businesses pay a percentage of their revenue annually to maintain their coverage. Many contractors roll this cost into their overhead so it’s easier to manage and track across multiple projects.
What’s Covered?
A COI typically provides coverage for accidents, property damage, and injuries on the job site. But it’s not a one-size-fits-all deal. For example, some projects may require higher coverage limits, like $2 million instead of the standard $1 million. These requirements should be clearly outlined in the job documentation you receive.
If something unexpected happens—like a tornado blows through your site—the COI may not cover everything. Natural disasters or “acts of God” can sometimes be addressed through additional change orders or by the property owner’s insurance. The key is to know where your insurance stops and other coverage begins.
Planning for Insurance Costs
Insurance costs vary depending on the size of your business, the type of work you do, and the requirements of each project. For smaller contractors, it’s usually calculated as a percentage of overall revenue or as part of the project’s overhead. While it’s difficult to give a universal number, most bid requests will outline the specific insurance requirements so you can factor them into your estimates.
Don’t forget to adjust your pre-bid calculations to account for any higher coverage limits or additional costs. This ensures you’re not caught off guard by a big insurance bill later.
Why GCs and Property Owners Care
General contractors and property owners require COIs to minimize their own risks. If an accident occurs or property gets damaged, they need to know their project is protected. In some cases, you may be asked to list the GC or even other contractors as “additional insured” parties on your policy. This ensures they’re also covered under your insurance.
Final Tips
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Read the Fine Print: Before starting a project, carefully review the insurance requirements in the bid documentation.
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Keep It Updated: Make sure your COI is current and tailored to each project.
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Work with Professionals: Partner with an insurance provider experienced in construction coverage.
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Plan Ahead: Include insurance costs in your project bids to avoid surprises.
Certificates of insurance might feel like just another piece of paperwork, but they’re crucial for protecting your business and keeping your projects on track. Get it right from the start, and you’ll save yourself a lot of headaches down the road.