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Risk Transfer and Certificates of Insurance

Part of understanding your insurance coverage and understanding risk mitigation as a handyman or general contractor is getting familiar with the terms associated with your insurance policy. One of those terms is “risk management”. This article serves as a guide for handyman companies and general contractors to help them understand risk, risk transfer, and how certificates of insurance help them and their clients equally.

What is Risk Transfer?

Any instance in which a risk is shifted from one party to another in the setting of a contract falls under the definition. For instance, obtaining workers’ compensation shifts the potential risk of workplace harm away from the employer and over to the insurance agency. By paying into a premium, you acknowledge that there is potential for your employees to experience physical and/or mental harm on the job and that you are taking steps toward protecting yourself from that potential. If an employee injury is claimed, the insurance agency providing the workers’ compensation policy is contractually obligated to pay the legitimate claims of injury because of their customer’s continued insurance contract.

How Does This Apply to Certificates of Insurance?

When dealing with certificates of insurance, risk transfer is implied in the information supplied on the COI form. It’s important for your clients to understand that in the event where you cause an accident that damages something they own, or causes bodily injury to one of the workers, you will be able to take action via the risk transfer. It is also important that they have evidence of insurance because they have their own local and state laws to follow, as well as corporate responsibilities that they can be found liable for if your company does something wrong.

Risk transfer through a COI lays out policy limits and helps people understand whether insurance requirements are being met. This document lists what types of insurance you have (including general liability insurance, additional insured status, workers’ compensation, automobile liability, etc.), the policy number, the insurance carrier, the signature of an insurance agent, and the name and contact information of the certificate holder, as well that of the insurance company.

Certificates of Insurance indicate that the proper steps have been taken toward contractual risk transfer. That way, the general contractor or handyman is not put into a trying situation that leaves them unable to pay for the damage caused whenever an accident happens. Having a liability policy or another binding contract transfers risk and eases the burden on both you and your clients.

Why Should I Consider Risk Transfer Options?

As a business owner, you must understand that accidents happen regardless of how prepared you are to prevent them. Additionally, it is probable that your company will be found at fault for an accident at some point.  However, the transfer of risk through a contract or an insurance policy (especially a general liability policy) eases the impact of your legal liability, it keeps you out of the legal dangers associated with non-compliance, and gives your clients the guarantee that they will be covered by your insurance program in the event of property damage, bodily injury, or some other accident caused by your company.

Risk management through a certificate of insurance is not always necessary, but it is often a legal requirement. The best plan of action for those seeking commercial general liability coverage is to ask their client about their certificate of insurance needs and then seek assistance from your insurance service providers. Sometimes, risk transfer can be accomplished through individual contracts, but most of the time it is the easiest and safest option for business owners to obtain a COI that acts as a transfer of risk document.

Contractors Liability understands that the terms used in the insurance industry can often add a layer of confusion for many business owners. Because of that, we are here to help you understand the intricacies of insurance certificates and the various terms used by the insurance industry. For more information, contact us on our website!

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