When you purchase or rent a new property, you will run into many legal requirements. Amongst these is the issuance of a certificate of insurance.
Certificate of insurance or COIs are documents that contain all the essential details of the insurance policy in a brief, standard format. The reason why a COI is important is because it provides access to the entire insurance coverage in a glance, proves the current insurance policy’s status, and protects you against any third-party liability.
Why is a Certificate of Insurance Important?
A Certificate of Insurance is common in property dealings. In case a tenant causes damage to the property, landlord insurance can help protect the landlord’s rights in the future. If covered by insurance, then the tenant who caused the damage might be subjected to bear all or a percentage of the cost.
Essentially, there are four reasons why certificates of insurance are important in every property deal:
1. Insurance Status
Since the COI is a summary of the detailed insurance policy, it serves as a proof for your current insurance status. Since most people do not have the time to go through lengthy documents in case of an emergency, the COI serves as an effective document to refer to when needed.
2. Quick Access
Instead of reading through 20 pages worth of insurance policy details, the COI provides a brief version in just a few pages. Even when this insurance policy needs to be updated, one can easily refer to the COI, point out any changes to be made, and simply revise the COI. This can save a considerable amount of time.
3. Less Liability
Since leasing a property to somebody else does not come without third-party involvement, it is important to have a COI that legally protects you from potential losses. In case something goes wrong, then the landlord insurance will help you file for legal action instead of bearing all the losses yourself. This is especially necessary if you are leasing your property to somebody who wishes to make any major renovations.
4. Legal Protection
Property dealing requires a large amount of paperwork. With the landlord insurance, you do not need to worry about the terms and conditions of your insurance policy and can simply rely on the COI. This can guide you through the most complicated of legal processes since the COI has every clause of the original insurance policy in brief.
Certificate of Insurance Explained
As somebody who is purchasing or leasing a new property, you might be confused as to why your landlord is demanding a certificate of insurance. According to the Association for Cooperative Operations Research and Development (ACORD), the ACORD 28 for property and ACORD 25 for general liability are essential to make any property dealing legal.
The ACORD Forms
The process of obtaining these forms is easy. All you need to do is request for them via your insurance provider and forwarding them to the landlord. Make sure that the ACORD 28 contains all the important information such as the borrower/tenant’s name as additional ensured, the correct and complete address, and your landlord’s name as the mortgagee.
Similar requirements need to be met for the ACORD 25. Make sure you name the borrower as the additional insured, and the landlord as the additional insured as well. The ACORD 25 certificate of insurance does not itself provide the certificate holder with any rights, but only details the insurance policy being referenced. If any policy in the original insurance policy is cancelled before the expiration date of the ACORD 25 certificate of insurance, then it is important to deliver a legal notice.
The purpose behind the ACORD 25 certificate of insurance is to specify that the ‘additional insured’ (i.e., the landlord), is meant to receive certain coverages by the named insured (the tenant). Remember that the landlord must be named as the additional insured, otherwise being a certificate holder does not provide any such benefit to the landlord.
These certificates issued by ACORD are a standard for any business or lease transactions being made. The certificate of insurance is specifically used by the broker and is meant for the named insured. Since the document entails all of the coverages for the insured, it is generally known as the landlord insurance and is required by most lenders.
Final Words
If you are leasing a property, remember to always ask for a certificate of insurance from your tenant. While this paperwork may seem lengthy and unnecessary at first, it always proves to be beneficial in case of any conflict in the future. If a case is taken to court, you will always require a landlord insurance certificate to demand the coverages promised in the initial insurance policy of the property.
