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What Is an Insurance Binder?

What Is an Insurance Binder?

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Sarah Li Cain
Updated April 21, 2022
4 Min Read

When it comes to getting a car loan or mortgage, people usually need insurance binders to ensure proof of insurance coverage. This article outlines what lenders need, such as coverage limits, as well as other terms and conditions. 

It’s important you understand what an insurance binder is and how to get one to satisfy your lender’s requirements. 

What Is an Insurance Binder?

An insurance binder is a temporary contract offering you, the binder holder, insurance coverage while you’re waiting for the formal insurance coverage to kick in. In other words, it’s a legal agreement that’s written by the insurance company offering proof you have insurance for a predetermined amount of time until the insurer issues a standard policy. 

This document will outline all the terms and conditions of your temporary insurance policy, including the expiry date — typically 30 to 90 days from the date it’s issued. Once expired, you will no longer have coverage through the insurance binder.

What Is Included in an Insurance Binder?

An insurance binder needs to include all relevant information about the insurance contract you purchased.

The following are the main elements included:

  • Insurance company: You'll be able to see clearly the name of the insurer, the policy number and the type of coverage purchased. 
  • Term(s): The binder will outline when the policy will be in effect and when it expires. 
  • Risk: The binder will state what’s insured, or the risk. For instance, for an auto insurance binder, it’ll include your car’s model, make, and vehicle identification number (VIN). For homeowners insurance, it will include the address being insured as well as the value of the property. 
  • Liability: You’ll be able to see the limits of coverage for the property insured.
  • Deductible and coverage limits: There may be multiple sections detailing what’s covered and the coverage limits for each. It usually includes any additional coverage or endorsements you may have purchased. 
  • The insured: the binder should name everyone who is insured, which is typically the property or vehicle owner, and any additional people you decided to insure under the policy. It’ll also include the names of lenders — for instance, your mortgage company for a homeowner's insurance policy. 
  • The Agent: The binder will give the name of the person who authorized the binder, including any disclaimers that the binder may be subject to the wording of the document. 

Types of Insurance Binders

There are several types of insurance binders including:

  • Car insurance binder: This kind of binder is usually required when you apply for a car loan or purchase a new car and can include liability, personal injury and collision coverage
  • Homeowners insurance binder: Mortgage lenders require it when taking out a home loan, and it usually includes personal property, structures and dwelling coverage
  • Commercial property insurance binder: Lenders require this type of insurance coverage for commercial properties, office buildings, storage facilities, or retail stores. 

An Example of How an Insurance Binder Works

Let’s say you want to purchase a car at a dealership. You were able to negotiate successfully with the salesperson and are ready to drive the car off the lot. However, the dealership requires proof of insurance right then and there before you can sign off on the loan. 

You decide to purchase a policy online, and the insurer sends you an electronic copy of proof of insurance you can show to the dealership. You ask for a binder so the dealership can keep it and you’re able to complete the loan process and drive your new car home. 

Do You Need an Insurance Binder?

An insurance binder can protect you just like your formal insurance policy, and it is especially useful before you receive the policy.  If you’re purchasing a new car or home, lenders will most likely require proof of insurance, so it’s a smart idea to request an insurance binder, especially if you know you’ll need it before closing on a loan. 

The good news is that many insurance policies take minutes to be approved if you’ve applied online. For more complex policies, it could take longer, which is why it makes sense to get an insurance binder which can last up to 90 days while you’re waiting for final approval for your official policy. 

How to Get an Insurance Binder

To get an insurance binder, start by reaching out to your insurance company and request one. If your insurer issues you a formal policy right away, you may not need a binder at all. If you’re unsure, it’s best to contact your lender to see how long it could take to get a policy approved, and request an insurance binder if it’ll take some time. 

In many cases, you can receive an electronic copy, though many insurance companies will be happy to send you a hard copy via mail. 

FAQ

What happens if a binder expires?

It’s a good idea to follow up with your insurance company or agent if your insurance binder is about to expire and you haven’t received your official policy documents. If it expires, you will most likely no longer be covered. Check well ahead of time because your insurer may need additional information from you to complete the approval process or mail you a new policy if it’s a matter of it getting lost in the mail. 

Is an insurance binder the same as proof of insurance?

Yes, an insurance binder is proof of insurance. This document outlines the agreement made between you and the insurance company for a certain type of coverage and that a policy is going to be issued.  

How long does it take to get an insurance binder?

Getting an insurance binder can take as little as a few minutes or a few days, depending on the insurance company and method of delivery.

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