What Is an Insurance Binder [How Does It Work & When to Get It]

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Are you still waiting for your insurance policy to be completed, despite going through the process with your insurance agent? If you’re short on time and the bank asks for proof that your new property is insured, you must obtain a binder. But what is an insurance binder? How does it work? This article addresses these questions and how to start and complete the process.

What Is an Insurance Binder?

An insurance binder is a temporary contract that is fully enforceable insurance, proving that you have insurance coverage while waiting for the official insurance policy document. In other words, when you obtain a binder, you have proof of coverage that your proper insurance is being prepared. Generally, insurance binders are needed when purchasing a car or home that requires financial transactions, such as a mortgage or other financing.

These are temporary insurance contracts (30 to 90 days), not permanent solutions. Instead, they serve as support, ensuring that you’re insured until you receive the formal document from your insurance provider.

Binder insurance templates are usually issued by the Association for Cooperative Operations Research and Development (ACORD). Therefore, a binder can be referred to as an ACORD binder. But a binder can also be referred to as:

  • Insurance card
  • Title binder
  • Insurance policy binder
  • Interim binder
  • Certificate of insurance

How Does a Binder Work?

If you purchase a house, for example, but don’t contact your homeowner’s insurance company until later, you can get a quote and confirm the policy for your residence. But your insurance company won’t be able to process all the paperwork immediately.

At closing, you must have proof of insurance. So the best solution is to call your insurance agent and ask for a binder of insurance, which provides proof of insurance and completes the closing on your house on time. Then, when you receive your actual insurance policy, you can disregard the binder.

NOTE: A binder ‘binds’ the coverage of the client to a temporary insurance contract.

What Is Included in an Insurance Binder?

A binder includes eight essential elements that provide necessary information about the contract that has been purchased.

Risk

The binder states the risks (or what is insured). For example, if the binder is for car insurance, it will include the vehicle identification number (VIN) and the car’s make and model. If it’s for property, it will consist of the insured dwelling value and the location address. If it’s for an apartment, it will include the number of insured contents.

Liability

Binder insurance declares the amount of liability insurance, showing the liability coverage limits for the named insured and property.

Insureds

All who are insured must be named in the binder, as well as any other additional insureds. The property owner is often the named insured, but other insureds may include a co-owner if the property is in one or more people’s names.

Insurance Company Name

The name of the insurance company should be clearly stated in the binder. If your insurance policy is underwritten through a partner, that partner needs to be named as well.

Agent

The insurance agent who authorizes the insurance policy binder must be named in the binder. In addition, if your agent is independent of the insurance company, the insurance agency they work for needs to be listed.

Insurance Terms

The insurance terms should be clearly identified in the binder, including the date the insurance goes into effect and the expiry date of the binder.

Deductibles

What does an insurance binder look like when it comes to deductibles? First, the deductible for each part of insurance on the property should be cited in the binder. The deductible limits typically range from no deductible to $2,000.

Coverage Limit

The coverage limit (or insured value) should also be mentioned in the binder. And if you have purchased endorsements, they should be included in the binder, as they are significant to the plan coverage.

Types of Insurance Binders

You can find insurance binders in various forms for different types of insurance, such as:

Auto Insurance

You can use an auto insurance binder to prove that your car is insured, which might be required by a finance company, leasing firm, or dealership when you’re buying a new car. Common coverages in binders for auto insurance include liability, comprehensive coverage, personal injury protection, and collision.

Homeowners Insurance

You should use a homeowner insurance binder to prove that you have coverage on your home. A binder is typically used when closing on a new home to verify that the mortgage company or lender insures the house. Common coverages in a homeowner insurance binder include dwelling, liability, contents, and medical payments.

Commercial Property Insurance

Commercial property insurance binders are required when buying commercial property, such as an office building, retail store, or storage space. Common coverages in the commercial property binder include those of the building and contents.

NOTE: According to 2019 car insurance statistics, the national average on car insurance in the US amounted to $1,517.

Key Takeaways

A binder is a temporary contract which is a fully enforceable contract of insurance proving insurance coverage while you’re waiting for a formal policy document.
An insurance binder is a temporary insurance contract, not a permanent solution.
A binder is typically replaced within 30 to 90 days.
You can obtain auto insurance, homeowners insurance, and commercial property binders.

When to Obtain a Binder of Insurance

If you purchase an insurance policy that goes into effect immediately, you don’t need a binder. But the most common situations where you need a binder are buying a new car or closing on a house. In these cases, if you are not yet fully covered, the lender wants to be sure that you’re covered. Therefore, you’ll need a binder for the period between the purchase date and when the official documents will be available to you.

How to Get an Insurance Binder

You can obtain a binder by simply requesting one from your insurance company. Whether it’s a homeowners insurance binder or one for a car, your insurer can issue the binder immediately. If the underwriting process takes time, you can be given a binder until your actual policy is ready. You can receive a hard copy of the binder via mail or digitally by email.

NOTE: Homeowners’ insurance policies cover damages caused by fire, lightning strikes, hail, and windstorms. But not all-natural disasters are fully covered. For example, damages caused by floods and earthquakes aren’t typically covered, so you might need to purchase separate insurance policies to protect the proprietorship from those types of risks.

Conclusion

What is an insurance binder? As noted in the article, it’s simply a temporary solution. Before its expiration, you need to check if your insurance company has issued a new policy. Otherwise, you’ll lose coverage and might be at risk for any accidents that may occur.

FAQ

What is the car insurance binder?

It’s a temporary proof of insurance to provide evidence of coverage required by law that allows you to legally drive your car, for example, if your policy is not completed yet.

How does an insurance binder work?

A binder provides insurance coverage while you’re waiting for your official policy document.

How long does it take to get an insurance binder?

When the insurer agrees to the coverage, you can get a binder within a day.

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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