Binder

Reviewed by Stefan Tirschler

Noun

bind·er | ˈbʌɪndə

Definition: A temporary document confirming an insurer’s commitment to honour a policy of insurance.

After selling the home insurance policy, the agent issued her customer a binder.

What is an insurance binder?

Buying an insurance policy isn’t quite like buying a slice of pizza; they don’t keep insurance policy wordings on a shelf, warm and ready to eat. Even after you’ve gone through the process with an insurance agent or broker, there might still be a short wait before you get your official policy documents. Maybe your policy needs to be reviewed by an underwriter, or maybe the insurance company is just a bit slow. Meanwhile, the bank that gave you a mortgage is breathing down your neck, waiting for proof that your new house is insured.

What are you supposed to do?

That’s what binders are for. In the insurance world, a binder is a temporary document issued by your insurance company that basically says:

“Yes! We are insuring this property.”

Binders are temporary confirmations of insurance, to help you get things done while you’re waiting for your final policy to arrive. (Square One actually refers to our binders as Confirmations of Insurance. Same thing.)

When do I need a binder?

There are a few scenarios in which you need a binder, including:

  1. Your mortgage lender wants proof that the house they’ve just invested in is protected by an insurance policy.
  2. You bought an insurance policy, and you need to make a claim before you’ve received your policy documents (a lot less common, but important nonetheless).

Let’s look at scenario number one:

Scenario #1

Norman just bought a new house. He also just bought an insurance policy to protect his house. Norman’s bank, from whom he got his mortgage, wants to see that the home is insured. After all, the bank made a pretty significant investment; they don’t want Norman’s house to burn down and lose the opportunity to foreclose on it if Norman stops making his payments. They won’t complete the transaction and release funds until they see proof of insurance.

Unfortunately, Norman’s insurer is a bit slow; they say they’ll take about ten business days to send his insurance policy documents. In the meantime, though, they provide him with a binder. The binder states that the policy is enforced as of today’s date, summarizes the coverages and the limits, and lists Norman’s bank as an additional insured. With this document on file, the bank will complete the transaction, release funds, and let Norman get the keys to his new house.

When you buy a house, your mortgage lender wants proof that the house is insured. They also want to see themselves listed on the insurance policy. After all, they’ve got a rather large financial interest in the property. The proof they want to see comes in the form of a binder.

Even if your insurance company provides your policy documents right away, the binder is still probably the thing your lender wants to see. It’s a commitment from the insurance company to insure the property, which includes the summary of what they’re protecting and the limits on that protection.

Let’s look at that second scenario:

Scenario #2

Norman is not a lucky guy. The first night in his new home, a terrible windstorm howls through the city. A tree gets blown over and smashes up Norman’s balcony. He knows his new insurance policy covers wind damage, but he hasn’t received his policy documents yet. He’s worried that the insurance company won’t want to pay for the claim because he doesn’t have the documents.

Fortunately for Norman, a binder is a fully-enforceable insurance contract. It’s not his fault that his policy wordings are still on their way to him in the mail; his insurance company has already promised to cover his home. That’s what the binder represents. Having an insurance binder is just as good as having your policy documents in hand.

To summarize, you may need a binder any time you need to prove you’re insured, but you don’t have your policy documents yet.

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When does binding coverage begin?

When you buy an insurance policy, your coverage begins as soon as someone with binding authority signs off on it, effectively stating “coverage starts on this date.” When an insurance company gives someone the power to commit the company to insurance contracts, that person has binding authority. Often, the agent from which you buy the policy will have binding authority, so your coverage will begin right away. Other times, the documents will need to be reviewed and signed by a senior agent or an underwriter before the coverage is bound.

If your insurer has given you a binder (or your policy documents), then you have proof of what coverage you are entitled to, and on what date that coverage begins.

What does an insurance binder look like?

An insurance binder is a one or two-page document. It includes all or most of the following information:

  • Policy number
  • Name and address of the policyholder
  • Additional insureds
  • Name and address of the insurance provider
  • Coverages included in the policy
  • Coverage limits
  • Deductibles
  • Endorsements
  • Start and end dates of the insurance policy
  • Expiry date of the binder
  • Name of the agent who issued the binder

Is a declaration page the same as a binder?

A declaration page is part of the official policy wording documents, so it’s not the same thing as a binder. An insurance declaration page contains a lot of the same information as a binder, though.

The important points

  • A binder is a document that acts as temporary proof of insurance.
  • A binder is evidence of the fully-enforceable insurance policy that the customer has purchased.
  • An insurance provider can issue a binder when proof of insurance is needed before policy documents are ready.
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