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An insurance binder provides temporary evidence of insurance coverage prior to the issuance of a formal insurance policy. People often need home and car insurance binders to provide proof of insurance coverage when purchasing a house with a mortgage or a new car with an auto loan.
The insurance binder specifies all the protections for which you are covered while you wait for a new policy, as well as any coverage limits, deductibles, fees, terms and conditions. Insurance binders usually only last 30-90 days and will not cover you upon expiration, so it's always important to follow up with your provider to ensure you've been issued a formal insurance policy.
What is an insurance binder?
The definition of an insurance binder is a temporary insurance contract that offers the binder holder fully effective insurance coverage while they wait for the formal issuance, or in some cases rejection, of an insurance policy. Carrying an insurance binder means there is a written legal agreement between you and the insurance company, providing proof or evidence of insurance for a certain period of time, usually until a standard policy is issued.
The insurance binder will not look like a physical binder but rather a few pages of legal paperwork that identify all the terms and conditions of your temporary insurance contract. The expiry date of on insurance binder is usually within 30-90 days of issuance. Upon expiration, the insurance binder will no longer continue to provide you with insurance coverage.
Many insurance binder forms or templates are issued by the Association for Cooperative Operations Research and Development (ACORD), a nonprofit that provides insurance companies with data and implementation standards. As a result, you may hear an insurance binder referred to as an ACORD binder or ACORD insurance binder.
An insurance binder may also sometimes be referred to as an insurance policy binder, title binder, interim binder, insurance card or certificate of insurance. Furthermore, insurance companies may use phrases such as bind coverage or bind insurance, which similarly mean the insurer is committed to, or bound by, an agreement to assume coverage prior to policy issuance.
Types of insurance binders
Insurance binders can come in several forms for different types of insurance, including auto insurance, homeowners insurance and commercial property insurance. Below we describe each type of insurance binder, with examples of when they are usually required and the common coverages included.
|Type of insurance binder||Often required if you...||Common coverages included|
|Car insurance binder||Buy a new car or apply for an auto loan||Liability, personal injury protection and collision and comprehensive coverage|
|Homeowners insurance binder||Buy a house and take out a mortgage||Liability, dwelling, contents and medical payments coverage|
|Commercial property insurance binder||Buy a commercial property such as a retail store, office building or storage space||Building and contents coverage|
What's in an insurance binder?
Insurance binders identify who and what are insured. Specifically, the insurance binder should specify or define:
- Insurance binder holder and/or named insured
- Insurance company and agent contact information
- Binder number
- The asset or risk insured
- Coverages and coverage limits
- Insurance endorsements
- Premium, or any required payments and fees
- Binder term, including effective and expiration dates
- Appropriate lender if your asset is secured by financing
- Disclosures, terms and conditions
When do you need an insurance binder?
Whenever you purchase a new insurance policy, you should always request an insurance binder to maintain proof of insurance prior to obtaining the actual policy. Furthermore, the insurance binder can help you verify the coverages you have applied for are accurate and ultimately confirm you are insured. The insurance binder will also help protect you if you are in an accident and need to file a claim prior to receiving your formal insurance policy.
You will also likely need an insurance binder if you are financing your car, home or commercial property with a loan. The lender usually requires evidence of insurance that complies with the financing agreement. If your insurance policy is not available at the time of loan issuance, you can provide evidence of insurance to the bank or lender with an insurance binder.
Two of the most common examples of insurance binder use are in cases of purchasing a home or a car. For example, when closing on a house, a homeowners or home insurance binder helps finalize your mortgage by providing temporary evidence of insurance. Similarly, a lender may require an auto insurance binder to approve an auto loan on a new car.
Today, some insurance policies can be issued within minutes online. However, depending on your circumstances, such as driver profile or the particular home you're buying, it may take several weeks for an insurance policy to be approved. As a result, insurance binders are typically issued for 30 days but can last as long as 90 days.
Insurers may send insurance binder letters via mail; however, if you need proof of bind coverage immediately, you should request electronic delivery via email or fax.
What to do after your insurance binder expires
After expiration of your insurance binder, you should verify with your insurance company that your new policy has been issued. Upon expiration, you will lose coverage and be at risk for any accidents that may occur while you are uninsured, as insurance binders are only meant to serve as temporary coverage. Never hesitate to follow up with your carrier to determine the status of your insurance policy, and be sure to request a copy of the new insurance policy contract if you do not receive one upon issuance.