Understanding Your Insurance Binder
Your Proof of Insurance While You Wait For the Policy
What Is an Insurance Binder?
The insurance binder represents the agreement between you and the insurance company and is a confirmation in writing that a policy will be issued. The insurance binder is a proof of insurance you can use until you receive your actual policy. An insurance binder may be issued for a limited time and have an expiry date.
Definition of Insurance Binder
An Insurance Binder is a temporary document issued by an authorized insurance representative that serves as proof of insurance for your home insurance, property or car. Your binder of insurance will outline the basic conditions, coverages, deductibles and named insureds that will appear in your insurance contract.
An insurance binder is subject to all the terms and conditions of the pending insurance contract.
What Information Is Included In an Insurance Binder?
The insurance binder should include all the necessary information about the insurance contract that has been purchased.
An Insurance Binder Will Include the Following 7 Key Elements:
- The insurance binder should clearly identify the risk. The risk is what is insured. For example, if the binder is for a car, the insurance binder should include the car make, model and vehicle identification (VIN) of the car. If the insurance binder is for a property, the binder should include the insured location address and the amount of insurance on the dwelling (dwelling value insured). If you are insuring a condo or apartment, it should also include the insured contents amount.
- Liability Insurance amount. The insurance binder will indicate the amount of liability coverage for the named insured(s) and property.
- Deductibles and Coverage Limits. The insurance binder should indicate the deductible for each section of insurance on the car, or for the home or property. The type of coverage and limit for each coverage should also be mentioned. If there is a relevant insurance endorsement that is an important aspect of the coverage you purchased, the insurance binder may also include mention of these coverages.
- The insurance binder must specify the named insured and also specify additional named insureds. For example, the named insured is generally the owner of the property. The additional named insured could be an additional owner. For example, if a property is in one or more people's names. The binder will also list the mortgagee or lienholder. In the case of a car, the finance and leasing company should appear on the binder of insurance.
- The binder of insurance should clearly indicate the insurance company, and type of coverage. Since insurance has many different levels of coverage, in particular for homes, the coverage type must be defined on the binder to allow no room for error or misunderstanding.
- The binder will clearly identify the term of the insurance, the day the insurance coverage becomes effective and the day the binder of insurance is valid until.
- The binder must identify the insurance agent who authorizes the binder. It may also include a disclaimer that will indicate that the binder is subject to the terms and conditions of the policy wording.
Who Needs an Insurance Binder?
Any time you purchase insurance, you should ask for an insurance binder so that you have proof that a policy will be issued and more importantly, you can confirm that what you have asked to have covered is insured properly.
When you get your binder of insurance check all details very carefully so that you do not have a problem. If you have a claim before the official insurance documents arrive the binder will be very important.
Car Insurance: Binders of Insurance
A car insurance binder is often used to prove that you have obtained insurance on your car and may be a requirement of a car dealership, lease or finance company when purchasing a new car.
For a car policy, you should see a description of coverages such as Liability, Collision or Comprehensive coverage with the associated deductibles. Mortgage clauses and clauses applying to the finance companies are also important.
Home Insurance: Binders of Insurance
A home insurance binder is used to prove that you have insurance coverage on your home and is most commonly used when signing for a new property in order to prove to the lender or mortgage that the property is insured.
For a home policy, you should see the amount of insurance on the building amount, the deductible and the named insured and policy term which will include the mortgage if applicable.
When Will an Insurance Binder Be Issued?
An insurance binder should be issued as soon as you request to have an insurance policy issued. This is your temporary proof of insurance.
An insurance binder is useful when the insurance policy documents, such as the declaration page and the contract wording are not available immediately. It is normal for it to take a few days for an insurance company to process all the paperwork required before an actual policy is issued, this is where the insurance binder becomes an important part of proving you are insured until you get your documents.
How Long Is a Binder of Insurance Good For?
The binder of insurance will usually be valid for a set term written on the binder of insurance. The binder is only valid until such time that the actual insurance policy documents are printed or issued. Once the official documents are issued, the binder is null and void and is replaced by the actual insurance contract.
What Happens If an Insurance Binder Expires?
Insurance binders usually indicate the maximum time limit for which they are valid. If you have not received your new policy documents and your binder is about to expire, make sure and follow up to ask for your documents or you may not be insured.
What Is Not Included in the Insurance Binder?
The insurance binder is a summary of insurance that is meant to give a general overview of the key coverages until such time the actual policy arrives. The insurance binder will not typically include any policy wording or definition of coverages such as special limits on home policies. The policy wording and terms of your actual insurance contract will always take precedence over anything outlined in a binder.
Two Examples of When an Insurance Binder May Be Used as Proof of Insurance
- Jack is buying a new home, he forgets to contact the insurance company until the last minute, and although he is able to obtain the quote and confirmation of an insurance policy for the residence, the insurance company can not process all the paperwork right away. His real estate agent advises him that at the signing for the home, he will need to have a proof of insurance coverage. He calls his insurance agent and asks for a binder of insurance. The binder is a legally binding document that will be sufficient proof for Jack to complete the signing for his home. Once the actual insurance policy arrives in the mail, Jack will disregard the binder, since the policy is the actual proof of insurance and contains the complete information.
- Jennifer is purchasing a new car. Her dealership tells her that they can not let her pick up the car until they receive proof of insurance. Jennifer calls her insurance agent who explains she doesn't have time to issue the documents on the spot, however, has the authority to issue a binder of insurance that will prove Jennifer is covered until the documents get officially issued. Jennifer's authorized insurance agent completes the paperwork and provides her with a binder of insurance.
What If I Never Receive the Insurance Policy? After an Insurance Binder Expires
It is extremely important to make sure you receive your insurance policy. A binder of insurance does not replace an insurance policy and is not meant to represent a long-term contract. If you have not received your insurance policy before the expiry of your binder there may be a major problem. It is your responsibility to follow up on your contract and make sure it gets issued.
Even if you paid for the insurance, until you have a valid insurance contract in your hand, you are at risk once that binder has expired. You have the right to have a copy of your contract. Always follow up to make sure your policy has been issued.
Your Insurance Binder Will Not Insure You After It Has Expired
If you have trouble getting your contract issued and are unable to get help from the agent or insurance representative who issued your binder, then you can also contact your state insurance commissioner to help you figure out what is going on. Insurance fraud does happen and following up on getting your contract will help you avoid any issues and make sure your binder represented a valid insurance contract. In most cases, your agent should be able to sort the matter out and get your insurance policy in your hands within a couple of weeks.
Just remember, the binder is temporary, you need the contract once the term of the binder is finished.