Understanding the ins and outs of certificates of insurance (COI) is key to protecting your business as a commercial real estate owner. COIs are requested by any party that needs to verify another party’s insurance coverage before engaging in a business activity.
In commercial real estate, a COI could be required by a general contractor, property manager, vendor, lender, and even tenants. A COI is a statement that shows the party is properly insured at any given time. It protects both particles by clarifying responsibility before a loss occurs. In this article, we are focused on COIs required by the owner for the tenant occupying the space.
A COI is a document that proves that a tenant has the required insurance coverage. In the context of real estate, it verifies that the tenant has the liability and property insurance for the property in question when the document is provided.
In today’s blog, we will examine what they are, why they’re important, how to track them, and more.
What Should a COI Include?
You should always consult with your attorney or insurance agent when writing your lease to ensure adequate coverage from your tenants. But, at the very least, an income-generating property typically needs the following insurance coverage.
- General Liability Insurance: If a tenant or tenant’s client causes damage or harm to a third party or the property itself. General liability insurance will help reduce the likelihood of the owner getting pulled into a lawsuit.
- Business Interruption Insurance: This policy allows the tenant to continue paying rent even when their business cannot operate for some time.
It’s important to note that insurance requirements may vary depending on the type of property and the activity performed within the space. Licensed insurance agents are great resources to help you evaluate the risk exposure you have based on the tenant type.
How Important Are Certificates of Insurance?
COI’s are extremely important for commercial tenants and are a critical risk management tool:
Here is why COI’s matter for tenants:
- Lease compliance: As part of the lease, most commercial leases will require tenants to carry insurance. Letting the insurance lapse could result in a breach of contract for the tenant.
- Protects Tenant’s Business: Having the right insurance in place protects the tenant against lawsuits from customer injuries, fire or damage in space, employee injuries, and even business interruption losses
- Builds Trust with the Landlord: Shows the tenant is professional and exhibits that they do not want to expose the landlord to an unnecessary liability.
How Certificates of Insurance (COI) Work
Here is the step-by-step process:
- The tenant shares with the insurance provider the requirements outlined in the lease. The tenant will purchase the necessary insurance policies from an insurance provider.
- The tenant will request a COI from the insurance provider. The COI will outline the policies in place and the amount, and the certificate holder.
- The tenants provide the COI to the landord for review. The landlord will verify the coverages, the coverage amounts and that that policy is active.
This process must be routinely monitored as tenants are likely on different renewal cycles.
Tenants often accidentally let insurance policies expire. Insurance companies also cancel them for many reasons. Tracking and keeping your tenants’ certificates of insurance up to date is crucial. Therefore, it is advisable to check their certificates of insurance regularly to ensure policies are still valid.
How to Get a Certificate of Insurance
The tenant should be aware their COI is about to expire. Consider using a property management software like STRATAFOLIO, which automatically alerts both the owner and the tenant that the COI is about to expire. At that juncture, the tenant should reach out to their insurance broker and an request an electronic copy of the new COI. That updated COI with the complete list of active policies can then be provided to the landlord.
Manage Insurance Details with STRATAFOLIO
In conclusion, a certificate of insurance is an important document in real estate deals because it proves that the owner or tenant of the property has the necessary liability and property insurance coverage. In case of emergencies or unexpected circumstances, insurance coverage protects everyone. It is important to get an insurance certificate and check it often to make sure it is still legal and up to date.
STRATAFOLIO enables users to upload copies of their certificates of insurance, securely storing them along with the lease and other important documents. One of the great features of our software is our certificate of insurance alerts. These notifications will automatically alert our tenants, owners, and the insurance company before the policy is set to expire so that it can be renewed.
Contact us today to learn more about our COI tracking and all the other features to help you streamline your commercial real estate operations.
