What is an insurance binder?
An insurance binder serves as a temporary placeholder when you start up a new insurance policy. It is used as proof of insurance until your formal policy is issued. Sometimes issuing a new policy can take time, so insurance agents will provide applicants with a binder to prove in the meantime that they do, in fact, have insurance.
Let’s explore what’s included in an insurance binder, in what circumstances you’ll be issued one, and why you might need it.
What does an insurance binder include?
An insurance binder looks a lot like regular policy documents that are given to applicants once they pay for a policy. It displays similar information to a declaration page, including the amount and type of coverage, effective dates, names of insureds, and any coverage limits, deductibles or endorsements. It is issued by your new insurance company and can be one or more pages in length.
Do all companies give insurance binders?
As technology has progressed and processes like buying insurance and drawing up paperwork have become much quicker, not all insurance companies need to engage in providing binders anymore. Most insurers issue policies quickly enough that a binder is unnecessary. They may also skip the binder by simply writing the policy with a future effective date — this is sufficient enough within the scope of homeowners insurance as mortgage lenders will accept this as adequate proof of coverage.
Insurance binders vs. certificates of insurance
Insurance binders differ from a certificate of insurance as the former is not representative of a long-term policy and the latter is. An insurance binder, at its core, is meant to be temporary proof of your intent to hold a true policy. The certificate of insurance is issued when the policy period begins, denoting the official policy effectiveness.
Types of insurance binders
Each insurance product has different guidelines for insurance binders, but they are most prevalent in homeowners and auto insurance. Let's take a look at both types and understand their functions.
When purchasing a new home, it's common for future homeowners to go through a lending association to fund their mortgage. Mortgage lenders almost always require applicants to hold homeowners insurance in order to be granted a loan.
An insurance binder provides the lending company important information on your coverage, which they will review and use to verify that you have signed up for insurance coverage that meets their standards.
Similar to a home insurance binder, a car insurance binder is used to show proof of insurance when you finance through an auto loan or lease a vehicle. Binders allow you to drive your new car off the lot — dealerships will require that you submit the binder as evidence of insurance before letting you leave with your new vehicle, verifying that you will be covered as soon as you step inside the car and take it off the lot. Auto insurance differs from homeowners insurance as it is legally required to hold in 49 states (New Hampshire is the exception).
How to get an insurance binder
Acquiring an insurance binder is as simple as contacting your insurance provider and requesting one. As mentioned earlier, not all companies will even need to issue a binder as the process for enrolling in an auto insurance policy is almost instant. In some cases, insurers may issue your policy immediately and your new policy is active right away, fulfilling the need for proof of insurance. Only if the underwriting process takes more time will you need an insurance binder. Most likely, the binder will be sent to you digitally and this is sufficient enough for the dealership and you won’t have to wait there for extra time.
If you’re adding a vehicle to your policy or getting new insurance for a new vehicle, it’s always a good idea to compare quotes with different car insurance companies to ensure you are getting the best rate for your situation. The Zebra’s quote tool below compares quotes from over 100 providers, and licensed insurance agents are available to secure a policy over the phone.