All You Need to Know About Insurance Binders

TLTR: An insurance binder is an official legal document between the insured and the insurer that serves as temporary proof of insurance. It notes the risks to the individuals or objects covered by the insurer. This article explores its importance to you as an insured.

In this blog

What is an Insurance Binder?

An insurance binder is a temporary document that serves as proof of insurance until the insured is issued a formal policy. Insurers typically give binders to new insurance customers. The Association for Cooperative Operations Research and Development (ACORD) issues most of the insurance binder templates. Hence, binders are also known as ACORD binders.

An insurance company may issue an insurance binder if the insured doesn’t have any insurance history or credit score for eligibility verification. This document should last seven days but can vary depending on what type of insurance you are seeking. Some binders last up to 30-90 days.

The most important reason for having this document is that any claims made by the policyholder during that time period still need to be paid by the insurer. If there’s not enough money saved up in the insurance binder to cover medical care or property, then the policy holder will have to use their savings.

This insurance binder is temporary and will be replaced with a formal insurance policy once it’s issued. It’s always vital to follow up with your insurer when your binder’s expiration date comes up.

Note: An insurance binder is also known as insurance policy binder, title binder, interim binder, insurance card, or certificate of insurance. Insurers also tend to use the terms bind coverage or bind insurance, which means that they agree to give coverage prior of issuing an insurance policy.

Insurance-agent-desktop
Insurance-agent-mobile

What Does an Insurance Binder Include?

An insurance binder is an official legal document between the insured and the insurer. It shows the individuals and objects that an insurer covers. Given the details necessary for issuing an insurance policy, an insurance binder includes the following information:

  • Binder number
  • Date of effect and expiration
  • Name and identity of the insured
  • Information of the insurance company
  • Contact details of the insurance agent
  • Details of the insured asset
  • Lender details (in case of financing)
  • Coverage details and limits
  • Covered risks and perils
  • Deductibles
  • Premium rates, endorsements, and relevant fees
  • Terms and conditions

Note: You can also add or omit additional information relevant to the insurance policy. Make sure to consult with your insurer or insurance agent regarding specific details.

Types of Insurance Binders

When you have an insurance binder, it serves as proof that you and the insurance company have a legal written agreement of insurance before the actual policy is in effect. In general, based on the type of insurance, binders are of the following types:

Auto insurance

Auto or car insurance binders are issued when an insured buys a new car or applies for an auto loan. This coverage usually includes general liability, collision, comprehensive, and personal injury protection.

Commercial property insurance

Commercial property insurance binder is issued to insurance customers when they purchase small to large commercial properties such as storage spaces or office buildings. This insurance usually includes coverage for the building and any contents within it.

Homeowners insurance

As per Value Penguin, at least 85% of homeowners in the U.S. have homeowners’ insurance. When getting home insurance, you should request a binder. Homeowners insurance binders is given to clients if they purchase a new home or plan to take a mortgage on one. This policy includes liability, property, dwelling, and medical coverage.

Life and health insurance

Clients that have applied for life insurance also require binders if their policy review takes more than a week. Life insurance agents can only give conditional receipts, not an insurance binder, since they don’t have the power to create a temporary policy with life or health insurance coverages on their own. These receipts can have minor requirements compared to the ones mentioned above. Insureds can get a receipt with just a simple up-to-date medical history and physical examination.

Note: Auto, home, and property binders fall under property and casualty insurance binders.

When is An Insurance Binder Necessary? 

An insurance binder helps protect you from potential risks to yourself or your assets should you need to file a claim before your formal policy is in effect. With that in mind, you will require a binder if:

You purchase a new insurance policy

It’s a good idea to request an insurance binder from your provider. Since it’s an interim policy, it will help verify your coverage details until you get the final policy.

You finance your purchased property

If you are financing your commercial property purchase, your lender will always require proof of insurance. An insurance binder will prove if your policy is not ready when you are taking out the loan.

You purchase a new car or home

A car insurance binder and home insurance binder are the most well-known binders in the industry. Even if policies can be issued online within a day, it can take a few weeks for them to get approved.

If you’re planning to close on a home or purchasing a new car in this time frame, you will require proof of insurance. This is where an insurance binder will provide temporary legal evidence of coverage and complete your acquisition of the home or vehicle.

Insurance Binder vs. Insurance Policy

In essence, an insurance binder is proof of your coverage. An insurance policy is also proof of your coverage. They might sound like the same thing, but aren’t. A binder serves as a placeholder for a full-fledged insurance policy. Binders become void once the actual insurance policy becomes available.

Also, note that a binder isn’t a full guarantee that an insurer will issue you a policy. It serves as a legal agreement between the insured and insurer, which dictates that the latter will issue a policy as long as it meets the requirements. During the duration of the binder, the insurer must cover the insured.

Thus, depending on the situation and timing, both a binder and policy have their uses to an insurer. 

when-to-get-insurance-binder

Where Does an Insurance Binder Come in Handy?

Let us look at the following scenarios.

Example Scenario 1

You’re looking to buy a new apartment. You’ve also considered getting necessary coverage to protect it. In this case, your bank is providing the mortgage for the purchase. So, they require proof of coverage for the apartment. They need to make sure that their investment is secure. Without proof of insurance, they will not approve the transaction.

Your insurer will take at least 2 to 3 weeks to finalize your insurance policy. But they can provide you with an insurance binder. The binder details all the necessary information such as date of enforcement, expiration date, mortgage/lender’s information, coverage amounts, and limits. This is sufficient information for the bank to complete the purchase of his new apartment.

In this scenario, the bank is protecting its investment in the apartment. If the bank approved the transaction without the proof of coverage and the apartment burned down, the bank could lose the opportunity to foreclose on it. So, to avoid such a precarious situation, the bank needs sufficient assurance that its financial interest is safe and secure.

Example Scenario 2

You’ve just bought a new car. You’ve financed it through your lender and got all the necessary documents and relevant details for your coverage. A few days later, you’re driving in a terrible storm. You’re careful, but suddenly another car loses control and hits you. You suffer some injuries, but your car is heavily damaged. Now, you’re worried about the financial costs of repairing your car and your medical bills.

You have insurance but do not have the policy in your hand. You’re not sure what to do next. The costs that have piled up due to the accident are high. You’re not sure if your insurance will cover you in this situation.

However, it will. Remember the important documents you submitted while getting your car financed? One of them is an insurance binder. It acts as a temporary policy, which is more than enough to enforce your coverage in such a situation.

In this scenario, you’re not at fault if your insurance policy is not with you or that the situation played out the way it did. Such instances are exactly where binders come in handy.

how-to-get-insurance-binder

What Should You Do When Your Insurance Binder Expires?

Your insurance binder isn’t going to be valid forever. It has an expiration date, past which it will not be sufficient for your proof of insurance. Once your binders reach expiration, not only will you lose the means to show evidence but also your coverage in case of accidents. Therefore, it is essential to contact your insurer and check up on the issuance of your policy once your binder expires.

It is even better to follow up days before the expiration date to ensure you are covered even after the binder expires.

In Conclusion,

A binder is useful to an insured when they must present proof of insurance while getting a mortgage or a loan. It is a legal contract that ties an insurer to the insured and verifies insurance coverage. It also stands as proof when you need to make a claim but do not have your policy.

As an insured, it is always best to keep track of when your binder expires so that you can get your policy beforehand. Once your binder expires and you don’t have your policy, you could be at risk and not get the necessary coverage in times of peril.

Make sure to follow up with your insurance agent or company if you haven’t received your policy a few days prior to the binder’s expiration.

Did you find our blog helpful? If so, please let us know your thoughts in the comments below. If you’re looking for another insurance blog, feel free to check our website or reach out to us.

Frequently Asked Questions

Is it Important to Request an Insurance Binder?

Yes. Requesting a binder when you do not have your insurance policy on hand is very vital. You are purchasing insurance to protect yourself from potential perils. They aren’t going to wait. While your insurer is busy reviewing your documents, you could potentially get injured or into an accident.

To safeguard yourself financially in such situations, you will need proof of insurance. This is where a binder comes in handy and gets you the necessary coverage when you cannot provide proof of insurance.

How Long Does It Take to Get an Insurance Binder?

Insurance binders are produced in a day or two at most. Your insurer needs some time to verify your documents and the information that you submitted for your coverage. Getting your coverage can take anywhere from a week to 30 days. But as long as you are sure to get insurance from your provider, and they are willing to provide you coverage, you can get an insurance binder right away.

Can My Insurer Cancel an Insurance Binder?

Maybe. Depending on your insurance needs, if the insurer assesses that you do not meet the requirements for its underwriting standard, they can cancel it. However, since binders are temporary policies that still provide coverage to the insured, the insurance company is required to send you an advance notice of cancellation.

This cancellation notice can vary depending on the insurer and the state you reside in; therefore, make sure to check with your local agent.

Related Articles

Independant Agents

Captive vs. Independent Agents

The Better Choice for Agents in 2021

Insurance agency cluster

Insurance Aggregator

The Best Way Forward for Insurance Agents

Insurance Broker

Insurance Agent VS Insurance Broker

Who is better?