What is a Binder in Insurance?

All you need to know about insurance binders.

Insurance is generally very important for everyone. It’s a foolproof way of making sure your family is taken care of after you. Thus, everyone should try to get life insurance if they can afford it.

And to make the process easier, we’re here to help you out with the insurance lingo to make sure you completely understand what you’re getting yourself into.

Starting with:

What is a Binder?

A binder is a temporary legal agreement between an insurer and the insured to provide evidence of a contractual relationship until a policy agreement is issued. In simple words, it is a confirmation that a policy has been issued.

An insurance binder outlines the basic conditions, coverage, deductibles and includes the name of the insured plus a beneficiary named (optional).

What information is included in the Binder?

The insurance binder contains all the important information about the insurance contract that has been purchased. An insurance binder will have the following elements:

  • The binder should identify the risk. The risk is what is being insured. So if it’s life insurance, the life should be identified as the risk.
  • Liability insurance amount. The insurance binder will include the amount of liability coverage of the insured and property.
  • The insurance binder should clearly display the deductibles and the type of coverage and the limit. If there is a relevant insurance endorsement which is deemed an important part of the coverage, it should be clearly stated in the binder.
  • It should specify the name of the insured. And if there are additional insureds or beneficiaries, the binder should clearly specify the names.
  • The insurance binder should also have the name of the insurance company and the type of coverage.
  • It will specify the term of the insurance. Term is the time period that the insurance policy will be set for.
  • And lastly, the binder must identify the insurance agent through whom the policy has been purchased. It may also include a disclaimer saying that the policy wording might determine the terms and conditions of the policy.

What is not included in the policy agreement?

An insurance binder will contain a summary of the coverage and all the important details around the agreement like the insured’s name, name of the insurance company etc. However, it should be noted that your insurance binder will not typically include policy wording or any definition of coverages. This is the case because the policy wording and the terms of your contract will take precedence over anything that the binder would have.

Now that we’ve determined what is a binder in insurance, the next thing to determine is if you need it.

Who needs an insurance binder?

Anytime an insurance purchase is made, an insurance binder will be issued to provide evidence of that purchase. As stated above, the insurance binder will have all the important information that is needed while making an insurance contract. This will serve as a temporary agreement while your actual policy agreement is being drawn up. But we already know that. What we don’t know is why we might need one and what type of insurance purchases require a binder.

Car insurance:

A car insurance binder or an auto insurance binder will provide proof of an insurance policy purchased of your car. Insurance may also be a pre-set requirement of some car dealerships, lease or finance company while purchasing a new car.

In reference to a car policy, it is advisable to add a description of coverages such as liability, collision, comprehensive coverage along with the associated deductibles. Some mortgage clauses or clauses relating to the finance company might also be included since they are deemed important. The same would also apply to an RV insurance binder.

Home insurance:

A home insurance binder, also known as a homeowners insurance binder, is used to prove that you have insurance at home. It is usually used when signing a new property or lease to show to the lender. The insurance binder for mortgage is proof that the property has been insured.

A home insurance binder should typically have the amount of insurance on the building, the name insured, the deductibles and policy term which will include the mortgage.

When is an insurance binder issued?

A binders agreement insurance is issued when you request to get an insurance policy issued. This is a temporary proof of your purchase.

It’s a useful document when the original policy agreement is not available immediately. It is normal for insurance companies to take a few days to process all the paperwork. This is why an insurance binder is important to prove your insurance when you don’t have the actual legal document ready.

The insurance binder is issued immediately after the purchase.

How long does a binder of insurance last?

The insurance policy binder will typically have the stated term for which the binder will be valid for. But specifically, the binder is only valid until the actual insurance agreement is issued. After which the insurance binder is rendered null and void and will no longer work as an official legal document.

What happens if the binder expires before the policy agreement is issued?

Binders typically specify the maximum time limit for when it will expire. But if your insurance binder is about to expire and you still haven’t received your policy agreement, it would be advisable to call the insurance company and get a follow up. Although it shouldn’t happen since binders have a maximum time limit, it is not impossible. So just to be prepared, make sure you contact the insurance company and get a follow up.

What if the insurance agreement is never received?

If such an event occurs, it is not something that should be taken lightly. You should not be calm thinking you have an insurance binder so you’re set. An insurance binder is only supposed to be a temporary agreement and will not work as a long term contract. Thus, if you don’t receive your policy agreement, you should be responsible and follow up with the company and make sure a policy agreement is issued.

If you are having trouble getting your policy agreement and the insurance agent that issued your binder is not much help, it is advisable to contact your state insurance commissioner so they can help you figure out what is going on and what your next step should be.

There’s a likely chance something fishy might be going on if you haven’t received your insurance agreement before your binder has expired. It is always a good idea to keep an eye out for insurance fraud and make sure you are not being scammed. You should also make sure the binder you have does represent a valid insurance contract.

The important thing to remember about binders is that they’re only temporary and you need an official and legal policy agreement as a long term contract.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.