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What Is an Insurance Binder

An insurance binder offers proof of insurance while you wait for your policy to be approved. Find out more about insurance binders in this article.

Contract with magnifying glass

An insurance binder is a document that serves as a temporary insurance policy until the insurance company finalizes the contract. Your insurance agent creates the insurance binder as a written agreement of the discussed insurance plan. An insurance binder will keep you insured until your agent underwrites your policy and hands over an official insurance policy contract.

In this article:

Insurance Binder Definition

An insurance binder is a document that serves as a temporary insurance policy that holds the place of the official policy. It's given to you by your insurance agent. You can get an insurance binder form for your homeowners, auto, and property insurance. It will keep you covered during the underwriting process and is valid until you receive your official contract or until the term included in the binder.

The insurance binder will include deductible amount, coverage limits, terms of insurance, and more. It should match your agreed upon terms with the insurance company.

Homeowners Insurance Binder

A home insurance binder ensures that you have proof of insurance for your home. When you first purchase a home, your lender will usually need proof of insurance. When the underwriting process is underway, insurers will give you a homeowners insurance binder that serves as proof of coverage. The document becomes void when you receive the official home insurance contract.

Your homeowners insurance binder will include:

  • The named insured (the policy owner)
  • The amount of insurance purchased
  • The deductible
  • The policy term
  • You will also see the mortgage if appropriate.

Car Insurance Binder

When you buy a car, the dealership will usually need proof of insurance before you can drive it off the lot. If your final auto insurance contract isn’t complete, your car insurance binder works as proof of insurance. This binder letter allows you to legally drive without the official insurance policy.

Your auto insurance binder includes an outline of your auto insurance policy. It should include:

  • The named insured (the policy owner)
  • The amount of insurance purchased
  • The deductible
  • The policy term
  • Details about the coverage types you decided upon with your insurance company. For example, if you chose liability, comprehensive, and collision coverage, the document should outline coverage details and deductibles.
  • If you have a car loan, that amount may also be included.

What Does an Insurance Binder Include?

Your insurance binder will include all the essential information about your insurance policy. You can expect to see a description of your policy as discussed with your insurance company. It may not include some specific policy wording that will be in your actual contract, but a summary of the key points. This is what’s included in your insurance binder:

Property

Your insurance binder should include the “risk” you’re insuring. The “risk” is what you’re purchasing the policy for, like a home or a car. For a home, the binder will include the address and the value of the property.

This can also include the value of the contents if you’re insuring a condo or apartment. If you’re purchasing auto insurance, the binder will include the car’s make, model, and serial number. This portion of the document focuses on the specifics of the property you’re insuring so that there’s no question as to what's covered.

Terms of Insurance

The most important aspect of your insurance binder is that it outlines the terms of your insurance policy. This makes it so you have coverage while you wait for the official contract from your insurance company.

Policy Owner

This is also known as the named insured. The owner of the property or vehicle should have their name in the documents, as well as additional owners. For example, if a couple buys a home and it is in both their names, they should be listed as named insureds in the insurance binder. If you’re purchasing an auto insurance policy, the leasing company would also appear in the document.

Deductible Amount

Your insurance binder will identify the deductible amount for each type of insurance you have on your car or home. That includes liability, comprehensive, and collision. Deductibles for auto insurance can be anywhere from $200 to $2,500, whereas home insurance deductibles range from an average of $500 to $1,000 per year.

Coverage Limits

Your insurance binder should outline the coverage types and limits that you and your insurer agreed upon. That way, if something happens before your official contract arrives and you need to submit a claim, your insurance binder has the specifics of your contract.

Any changes or additions to an existing contract (also known as an insurance endorsement or rider) could also be mentioned. Whether you’re purchasing auto or home insurance, it’s important your coverage limits are clearly defined in your insurance binder.

Date of Coverage

Your insurance binder should make the term of your insurance clear in the document. Also, there will be a date that your binder becomes invalid included in the document. It’s important that you receive your official policy before that day to avoid a lapse in coverage.

Company and Insurance Agent

The document will include the insurance company name and the insurance agent who gave you the binder. It must identify the person who authorized the binder (which should be your insurance agent). There’s also usually a disclaimer in this area that defines that the binder is subject to the terms of the policy language.

How do you get an Insurance Binder?

Your insurer will usually give you an insurance binder automatically after you agree on the terms of your insurance policy. They’ll give it to you as temporary proof of insurance while they write your policy. It’s used as a short-term proof of insurance as some necessary forms take longer to process.

It can take a few days to process the paperwork and to complete underwriting. If your insurance agent doesn’t offer you one, you should ask for an insurance binder as temporary proof of insurance. An insurance binder also serves as confirmation of the discussed insurance plan.

FAQs

Q: What happens after my insurance binder expires?

A: If the set term included in your binder is approaching and you still haven’t received your official policy from your insurance representative, you should reach out immediately. Your binder will only offer proof of insurance until the time outlined in the document. It isn’t equal to your actual policy.

An insurance binder is meant to be a short-term contract. So, it’s incredibly important that you get your insurance policy. You’re at risk until you have a valid contract in your possession. After you have the policy in your hand, you can disregard your insurance binder.

Q: What is underwriting and what does my insurer look at?

A: The underwriting process is why your insurer may not be able to immediately hand over your official insurance policy. During the underwriting process, your insurance company looks at any inconsistencies in your personal information, and if they find any, your rates could go up. If this happens, your insurer will let you know within 10 to 30 days so that you can find coverage elsewhere.

Q: I need proof of insurance quickly, but the paperwork isn’t being processed soon enough. What do I do?

A: Ask your insurer for an insurance binder. Whether you need proof of insurance for buying a home or car, your insurance company should be able to present you with an insurance binder. Because this is a legally binding document that outlines your insurance policy, it is valid proof of insurance. Once the paperwork is processed and you have your official insurance contract, you can disregard the insurance binder.

Q: Can I use my insurance binder as proof of insurance after I receive my official policy?

A: No, you cannot use your insurance binder as proof of insurance if you already have your policy. Your insurance binder is meant to be a temporary document that holds the place of your official policy. The difference between your insurance policy and your binder is that your insurance company can discover something that changes your rates while your policy is being approved.

You may also receive a change in the coverage amount. The document you receive will likely include the same information as the binder, but the policy is finalized. Once you receive your insurance contract, your insurance binder becomes invalid.

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