What is a binder?
The term binder refers to a temporary document that an insurer issues as proof of a vehicle or property’s insurance status. The document outlines the basic conditions of the policy, deductibles, name insured, and coverage that will appear in an insurance contract. An insurance binder is subject to the terms and conditions in the pending insurance contract. Upon issuance of an insurance policy, the binder immediately becomes null and void. A binder’s maximum term of validity is usually specified.
Binders are issued for vehicle and home insurance. A car insurance binder provides proof that you have insured your vehicle and may be required by a lease or finance company or car dealership when you buy a new car. Likewise, a home insurance binder proves that your home has insurance coverage and may be required by the lender when you buy a new property.
A binder is a fully enforceable contract between you and your insurer. Once it goes into effect, the binder is deemed to cover all the terms and conditions of the policy.
In most cases, the binder proves useful when certain documents that are part of the policy, such as the declarations page, are not immediately available. It is normal for an insurance company to take a few days to process the paperwork before issuing an actual policy contract, making the binder necessary.
A binder should contain all the information regarding the insurance policy that has been purchased. For instance, if the binder is for an insurance policy on a car, the binder needs to contain the vehicle’s make, model and serial number. A binder must also specify who the named insured is — usually the property owner.
An insurance binder also indicates the amount of liability coverage on the insured property and the deductible. Many insurance binders have cancellation provisions included. An insurance company may cancel the binder if it determines that the insured does not meet underwriting standards. Cancellation of a binder is subject to the same laws that govern the cancellation of policies.
Example of a binder
A binder is a fully enforceable insurance contract, but it is essential that you receive your policy in time. This is because the binder is neither a long-term contract nor does it serve as a replacement for an insurance policy. It is your responsibility as the insured to consult your insurer and make sure that the policy contract is issued to you. Even if your policy is fully paid up, you are at risk once the binder expires and you do not have the insurance policy contract at hand.