An insurance binder is a temporary extension of insurance coverage, pending investigation of the policyholder and issuance of a full policy. It takes effect immediately or within 24 hours to provide coverage quickly and cover the policyholder's liabilities. Some insurance binders are simply oral; an agent will promise to write a policy and send it within 10 days. More commonly, the agent will provide the client with a document briefly listing the coverage type and some other basic information. This document indicates a commitment on the part of the insurance company to provide coverage if the policyholder meets his obligations.
The insurance binder is usually only active for a short period of time, such as 10 days. The policyholder will receive a document listing her name and any lien holders if the insurance binder covers a secured asset like a home or a car. The document will detail the type of coverage and amount, and also provide information on how to contact the insurance agency.
Before a transfer of title can take place, it may be necessary to show proof of insurance. People buying homes and cars do not want to wait for their official policies to come through to start using their new purchases, and all parties are usually eager to close the deal. The binder acts as a stopgap to satisfy the coverage requirement and allow buyers to take possession immediately. Lien holders want the asset insured at all times in the event of an accident, and the prior owner may have liability concerns that lead him to insist on proof of insurance. In the event of an accident, the binder will be useful for determining who must pay.
Not all insurance agents can offer binders. They have contracts with the insurance company offering authority to provide insurance, but the specifics of each contract can vary. If the agent can issue a binder, he acts on behalf of the insurance company and issues a generic policy on the basis of the type of item involved and the policyholder's provided demographic information. The insurance company may later decide to raise the price for coverage if it finds unexpected risks, and it can withdraw the offer of coverage if the policyholder fraudulently concealed information in the application process.
It is advisable to retain a copy of the insurance binder. If there is a dispute about when the insurance took effect or whether the insurance company had actually provided coverage, this document will provide proof to support the claims made by the policyholder. Policyholders should also ask about what will happen if they need to make claims on the policy in the time period between issuing the insurance binder and receiving the policy.
