An insurance binder is temporary or interim evidence that you have an insurance policy. Sometimes an agent or insurance company issues a binder before issuing your actual home insurance policy. Binders are official documents from your insurer and are enforceable contracts that can act as evidence that you have coverage.
When you purchase home insurance, you may need to wait for the insurance company to issue a policy that outlines the details of the contract, such as what’s covered, what’s excluded, how long the coverage lasts.
Unfortunately, you sometimes need evidence of insurance before your insurer sends you a copy of your policy. This is why insurance companies might send a homeowners insurance binder. That way, you can show that you paid for a policy and an insurance company has agreed to cover your risk.
While a binder can act as proof of insurance, the practice of issuing them is becoming less common. Insurance companies are increasingly moving online and using technology to speed up underwriting, so binders are an increasingly uncommon and old-fashioned way to do business.
You should also know that insurance binders are not fully written home insurance contracts. In fact, a binder doesn’t provide many details, so many of the policy terms and conditions are presumed. This doesn’t stop insurance binders from being enforceable contracts.
What is included in an insurance binder?
For an insurance binder to be valid, it must contain certain information.They often only list the most pertinent details about your insurance coverage, similar to those found on a policy declarations page.
Risk
The risk is the insured asset, or basically whatever is at risk of being lost. In the case of homeowners insurance, the risk is the home that’s being insured. It’s often identified by the address of the home. For a risk such as a car, the year, make, and model would be listed.
Coverages and coverage limits
A binder needs to note what coverage you have on your home. Most home insurance policies have six coverage parts:
Each of these should be on your binder along with the coverage limits, sometimes called limits of liability.
Endorsements
Endorsements, also called insurance riders, can create additional coverage or they can exclude coverage. If you purchased an endorsement for, say, animal liability or water backup, then it should be listed on your binder.
Deductibles
Home insurance usually has at least one deductible, which may also be called a standard or AOP deductible. Depending on where you live and who your insurer is, you might also see a hurricane deductible or a wind/hail deductible.
That’s why the standard deductible is also called an AOP. “AOP” stands for “all other peril.”
Name of the insureds
As an enforceable contract, the binder must state who gets the benefits of the policy. The most obvious example is the named insured, which simply means a person explicitly mentioned in the policy. For home insurance, the named insured is typically the policyholder, or the person who purchased the coverage.
But policies can also have additional insureds, or people who are added to your coverage. Homeowners often add their mortgage company to their coverage as an additional insured.
Insurance company name
This may seem obvious, but a binder must name the insurance company providing coverage. Along with the insurance company name, the binder lists the type of coverage purchased.
Policy term
Binders always include the policy’s effective date and sometimes its expiration date. Because binders are temporary, some also include their own expiration dates.
Agent name
Agents have the authority to bind coverage, which means they can confirm coverage is in place, so the agent’s name and contact information are usually listed on the binder. This lets the insurance carrier know who’s working with the policyholders and who submitted the initial application.
Why is an insurance binder important?
Insurance binders are important because other parties often have an interest in the risk that a policy covers and may want evidence of insurance. Anyone who loans money for a major purchase, like a mortgage company lending you money to buy a home, is an example of someone who has an interest in a risk.
Is an insurance binder the same as a certificate of insurance
Home insurance binders work similarly to certificates of insurance certificate (COI), but these are actually different documents. One of the key differences is that insurance binders are temporary. They’re only good until a full policy is issued. A COI is good throughout the life of your policy.
Another important difference? COIs are commonly used for business insurance. Contractors and other professionals give COIs to their clients as proof of insurance. Binders may be used for both business and personal lines insurance policies.
How to get an insurance binder
To get a home insurance binder, simply request one from your insurance company after you have made your initial premium payment. You can then forward it to your mortgage lender as proof of coverage.
However, most insurers now offer online accounts where you can download your full insurance policy and dec page after you pay your premium, making a binder unnecessary.