Business liability insurance financially protects your company from people claiming bodily injury on your property. This liability insurance also protects your company in the event of property damage. When you purchase insurance, or you must add employees to your insurance policy, you should understand the difference between a certificate of insurance and adding insured individuals to your policy.
Certificate of Insurance
A certificate of insurance is also known as a binder. This certificate proves that insurance coverage is in effect, but does not actually provide any coverage. The binder may indicate that a temporary coverage, but does not constitute the actual insurance policy. The certificate would be something you would give to laborers in your company to prove to clients that the company and workers are insured.
Adding a worker to your insurance policy means that the worker has insurance. An insurance company may charge additional premiums for adding insured individuals to the policy, since it must pay claims when the worker files a claim or when a client files a claim against the worker. The employee is an additional insured on the policy and may even show up on the certificate of insurance.
The purpose of having a certificate of insurance is simply to prove that the company has liability insurance. The policy is in effect even though the employee may not have coverage specific to himself. The purpose of having additional insureds on your policy is to actually insure an individual under your policy. This provides the coverage that is necessary in the event a claim arises from the actions of your employee.
Having a certificate of insurance means that you have the means to prove that you have insurance. Adding additional insureds to your policy protects your company from losing money due to a claim against your company. Combined, you are protected from going bankrupt due to a liability claim. The claimant cannot come after the business assets as long as the liability does not exceed the limits outlined in the policy. This allows you to run your business without having to build a cash reserve specifically for lawsuits or liabilities arising from normal business activities.