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When you take out a mortgage for a home, the lender will typically require you to carry homeowners insurance throughout the life of the loan. This is done in order to protect the lender in case there are covered losses that occur to the home. Some lenders will even require proof of home insurance before they will approve a loan as part of the underwriting requirements. But what happens if your lender requires homeowners insurance but you haven’t received your policy documents in time for closing on your home?
These circumstances aren’t abnormal, especially considering all of the moving parts that go into buying a home. And, the good news is that there’s a fix. In these cases, homebuyers can request a home insurance binder from the insurance company. A binder provides proof that you have the required coverage options and are awaiting your policy. Home insurance binders provide protection for the subject property and enable you to move forward with the mortgage process.
Why do I need a home insurance binder?
Lenders often request proof of homeowners insurance before they will approve a mortgage loan. It may take some time to get your policy documents after you purchase a home insurance policy, so a home insurance binder can provide the proof of coverage that your lender needs in order to approve your mortgage. A binder also enables you to file a claim, should there be a covered incident that occurs before you receive your policy.
Not all companies issue home insurance binders, however. Insurance providers that use advanced technology can typically issue homeowners policy documents online, usually within a few hours, and that same-day policy document delivery typically eliminates the need for an insurance binder.
What does a home insurance binder include?
An insurance binder serves as your proof of home insurance coverage, so it must contain detailed information, including:
- Property address
- Policyholder’s name
- Insurer details, including the name of the insurance company and insurance agent
- Types of protections, like dwelling, personal property, loss of use, personal liability and medical payments coverages
- Coverage limits
- Policy deductibles
- Covered perils, such as fire, hail and wind
- Effective dates, including when the coverage begins and ends
How to get a home insurance binder
If your insurance company does not automatically issue a home insurance binder, you can request one. In addition to the binder, the insurer will typically also issue proof that you have paid your premium. You can usually submit the binder and proof of payment to your mortgage lender to move forward with the mortgage loan process.
Depending on your state’s insurance laws, a home insurance binder might have a time limit in which it is valid for. For instance, a home insurance binder in Texas is only valid for 30 days, according to state law. As such, if a Texas homebuyer receives a home insurance binder that’s dated September 1, they must obtain an insurance policy on or before September 30.