Understanding Your Insurance Binder

It's Your Proof of Insurance While You Wait for the Policy

couple providing documents for new home with agent
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An insurance binder shows the agreement made between you and the insurer. It confirms in writing that a policy will be issued. The binder is proof of insurance that you can use until you receive your actual plan. It may be issued for a limited time and have an expiration date.

Insurance Binder Defined

An insurance binder is temporary. It's issued by an authorized representative. It serves as proof of insurance for your home, property, or car. Your binder will outline the basic terms, coverages, deductibles, and named insureds that will appear ​in your contract.

A binder is subject to all the terms of the pending contract, unless it is noted otherwise. 

What Is Included in a Binder?

The binder should include all necessary information about the contract that's been purchased. It should include seven key elements.

Risk

The binder should clearly state the risk, or what is insured. It should include the car's make, model, and vehicle identification (VIN) if it's for an auto. It should include the insured location address and the amount of insurance on the dwelling (dwelling value insured) if it's for a property. It should also include the value of insured contents if it's for a condo or an apartment.

Liability

The binder should state the amount of liability insurance. It will show the limits to coverage for the named insured(s) and the property.

Deductibles and Coverage Limits

The binder should cite the deductible for each section of insurance on the car, the home or property. The types of coverage and limits for each should also be mentioned. The binder may also include any endorsements you've purchased because they're a vital aspect of the plan coverage.

The Insureds

The binder must name all persons who are insured, as well as any additional insureds. The named insured is often the owner of the property. Other insureds could include a co-owner if a property is in one or more person's names.

The binder will also list any mortgagees or lienholders. The finance or leasing company should appear on the binder of insurance in the case of a car.

The Company

The binder should clearly state the name of the insurance company. It should state the type of coverage that's been purchased. Plans have many levels of coverage, particularly for homes, so the types must be defined on the binder to allow no room for error.

The Term

The binder will clearly identify the term of the insurance: the date the insurance goes into effect and the date when it expires.

The Agent

The binder must name the agent who authorizes the policy. Binders may also include disclaimers that will say that it's subject to the terms of the policy wording.

Who Needs an Insurance Binder?

You should ask for a binder any time you purchase a plan so you have proof that you're going to be issued. You can confirm that what you've asked to have covered is indeed insured.

Check all details when you receive your binder so you don't have a problem. Having the binder will be crucial if you have to make a claim before the documents arrive.

Car Insurance Binders

A car insurance binder is often used to prove that you've insured your car. It may be required by a dealership, a leasing firm, or a finance company when you're purchasing a new car. 

You should see coverages such as liability, collision, or comprehensive coverage, along with each of their deductibles. Clauses that apply to any finance companies should also appear.

Home Insurance Binders

A home insurance binder is used to prove that you have coverage on your home. It's most commonly used when you're closing on a new property so you can prove to the lender or mortgage company that the home is insured.

You should see the amount of insurance on the building, as well as the deductible, the named insured, and the term. Mortgage clauses should also appear.

Example of How a Binder Works

Let's say Tom is buying a new home. He forgets to contact the insurance company until the last minute. He's then able to obtain the quote and confirm the policy for the residence, but the company can't process all the paperwork right away.

The real estate agent advises you that he'll need to have proof of insurance at closing. The legal document will provide proof so he can complete the closing on your home. Tom calls his insurance agent and ask for a binder.

He can disregard the binder when he receives the actual insurance policy because that will contain the complete information.

When Will a Binder Be Issued?

An insurance binder should be issued as soon as you request to purchase an insurance plan. This is your temporary proof that you're covered.

A binder is useful when the insurance plan documents, such as the declaration page and the contract wording, aren't available right away. It can take a few days for a company to process all the paperwork required before a policy is issued. The binder is a key part of proving that you're insured in the meantime.  

How Long Is a Binder Good?

The binder should be valid for a set term that's written on the document. It's only valid until such time as the actual policy documents are printed and issued. The binder is null and void and is replaced by the actual contract when the official documents are issued. 

What Happens if a Binder Expires?

Binders often state the time limit for which they're valid. Make sure to follow up and ask for your documents if you haven't received them and your binder is about to expire. You may not be insured after that date otherwise.

What Isn't Included in the Binder?

The binder is a summary that's meant to give an overview of the plan's key coverages until the actual policy arrives. The binder often won't define the finer details of coverages, such as special limits on home plans.

What If You Never Receive the Policy?

It's key to make sure you have a copy of your policy. A binder doesn't replace it. It's not meant to be a long-term contract. There could be a major problem if you haven't received your policy before your binder expires. Follow up on your contract and make sure it gets issued.

You're at risk when your binder has expired until you have a valid contract in your hand, even if you've paid for the plan. You have a right to a copy of your contract. Always follow up to make sure your policy has been issued.

Contact your state insurance commissioner to help you figure out what's going on if you have trouble getting your contract issued. Insurance fraud does happen sometimes, and following up on getting your contract will help you avoid any issues. Your agent should be able to sort the matter out and get your policy in your hands within a couple of weeks.