What is an Insurance Binder?

Cartoon image of insurance agent holding a rolled up policy
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You may have received an insurance binder if you recently purchased a commercial insurance policy. A binder is a short document (generally one or two pages) that serves as a temporary policy. It applies for a limited period of time, such as thirty days. A binder dissolves once a policy is issued.

A binder differs from a certificate of insurance. A certificate serves as evidence of insurance. It is issued to satisfy a demand from someone other than the policyholder.

An insurance binder, on the other hand, is issued for the benefit of the insurance buyer.

If you purchase insurance coverage from a non-admitted (surplus lines) insurer or through Lloyd's of London, you may receive a cover note rather than a binder. A cover note is essentially a binder by another name.

Who Issues Binders?

A binder may be issued by an insurance company or by an insurance agent on the insurer's behalf. An agent can issue a binder only if he or she has the authority to do so. The scope of an agency's binding authority is spelled out in a contract between the agency and the insurer. The contract may permit the agency to bind coverage for some types of policies but not others. An agent who does not have the authority to issue a binder may request one from the insurer.

Insurance brokers cannot issue binders because brokers do not have binding authority. Unlike insurance agents, brokers do not act as representatives of insurers.

Information Provided

A binder provides limited information about the policy it represents. While binders may vary somewhat from one insurer to another, many are written on a standard form. A typical binder contains the type of information outlined below.

General Information

A binder provides general information about your company, your insurer and your agent.

It typically includes:

  • Your agent's name, address and contact information
  • Your company's name and address
  • Name of your insurer
  • Binder number
  • Binder effective dates
  • Policy number (see note)
  • Description of your operations, vehicles or property to be covered

The binder number applies to the binder only. It is not the same as the policy number that will appear on your policy. Your binder will list a policy number only if the binder has been issued to extend the term of a policy that has expired. For example, suppose that your insurer has decided to cease writing workers compensation policies in your state. Your insurer notified you 60 days before your policy expired. However, you need more time to shop for coverage. Thus, your insurer issues a binder extending your policy for 60 days after its expiration date.

Coverage Information

A binder often contains separate sections for each coverage. Examples are Commercial Property, General Liability and Workers Compensation. For each type of coverage you have purchased the binder should list the limits and the coverage forms that will be included in your policy.

A binder may also list key endorsements.

Depending on the coverages you have purchased a binder may also indicate the following:

 If you are insuring a building or vehicle that is secured by a loan, your lender's name should appear on the binder.

Conditions

A binder typically includes some conditions. For instance, it may state that the insurer has agreed to bind the types of insurance described in the binder.

The binder may also contain cancellation provisions. An insurer may cancel a binder if it determines that your business does not meet its underwriting standards. However, binders are subject to the same laws that govern cancellation of policies. If your insurer cancels a binder, it must give you notice within the time period required by law. Cancellation requirements vary from state to state.  Fortunately, binder cancellations are relatively rare. Most binders are replaced by insurance policies.

Finally, a binder may contain conditions that apply only in specific states. These conditions will not apply to you unless your business operates in one of those states.

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