What Is An Insurance Binder And Why Is It Important?

Insurance binders are often required when applying for a mortgage or to purchase a car.

They specify protections that are provided while you wait for your policy, as well as any coverage limits, deductibles, fees, terms, and conditions.


In short, an insurance binder is an insurance policy that’s in force until your full policy takes effect. Use it to provide coverage evidence for your full policy.

Learn the importance of binders in this article. Read on!

What is an Insurance Binder?

An insurance binder is an insurance contract that offers the binder holder a fully effective insurance policy. It might be until the formal issuance or rejection of an insurance policy.

An insurance binder is a written legal agreement between you and the insurance company, providing proof of insurance for a certain time. A standard policy will be issued after your binder expires.


The insurance binder you receive from a temporary insurance company is a legal contract protecting your interests.

It typically lasts for 30-90 days and provides you with coverage on the terms set out in the agreement.

Also, the insurance binder form is issued by a nonprofit that provides guidelines and standards for insurance companies to follow to get more accurate quotes and provide the best possible service to customers.

Additionally, insurance companies may use phrases such as bind coverage or bind insurance, which means the insurer is committed to or bound by an agreement to assume range before policy issuance.

Maybe you want to know if life insurance is needed? Click here to find out more: Should You Get Life Insurance?

Three types of Insurance Binder

Insurance binders can come in several forms and are required for different types of insurance. Here is a description of each kind of insurance binder when the need arises, including the common coverages.

1. Auto insurance

A car Insurance binder is required when buying a new car or applying for a loan.

Auto insurance binder covers:

  • Liability
  • personal injury protection
  • collision and comprehensive coverage

2. Homeowners insurance

A homeowner’s insurance binder is also required when you buy a house or take out a mortgage.

A homeowners insurance binder  covers:

  • Liability
  • Dwelling
  • Contents and medical payments coverage

3. Commercial property insurance

And a commercial property insurance binder is required when buying a commercial property like a retail store, office, and storage space.

Commercial property binders covers:

  • Building and contents coverage

When will you need an Insurance Binder?

Imagine this! You just bought your dream car. After saving for years and browsing for months, you finally got it. And it’s even the right color!

So you’ve called your insurance agent and told them what kind of coverage you want, but it’s going to take a week for the underwriter to complete the formal contract.

Does that mean you can’t drive your dream car for a whole week because you don’t have any insurance? Not necessarily. You can move it, but you need a car insurance binder.

The insurance binder will help you protect yourself after an accident and ensure that your formal insurance policy is filed promptly.

Here are other examples of when Insurance Binders are used:

When buying a new insurance policy

Insurance binders can help you maintain your proof of insurance and confirm that you’re fully covered.

The binder will help you keep track of the coverages and the companies you work with so that any time there’s a question or dispute, all your information is right there.

When financing your property

If you’re financing something like a car, home, or business with a loan, you’ll likely need insurance to cover the risk.

While insurance is mandatory in most cases, if your policy isn’t available at the time of loan issuance, you can provide evidence of insurance to your lender with an insurance binder.

When purchasing a new home or car

When buying a home or car, two of the most common situations, where insurance binders are used are closing a house or obtaining an auto loan.

A binder helps finalize the mortgage by providing temporary evidence of insurance for a homeowner, and an auto loan may require an auto insurance binder to approve the purchase of a new car.

What are the disadvantages of driving with insurance? Found out here: Driving Without Insurance: Risks & Costs Involved.

How do Insurance Binders work?

An insurance binder is a document that describes temporary insurance coverage pending the issuance of a formal policy or rejection of the application by the insurer.

But once the formal policy is issued, the binder merges into the policy. It becomes evident that insurance coverage has been attached at a specific time and continues in effect until either the policy is issued or the risk is declined.

It’s important to remember that a binder is a fully enforceable contract of insurance. Once the binder is in effect, it is deemed to include all of the policy terms the binder was given and has the same effect as the policy.

How do you get an Insurance Binder?

There’s no need to worry about the process of getting an insurance binder. In most cases, you can request one from your insurer, and it will be issued immediately.

However, if the underwriting process takes time, you’ll be issued a temporary binder until your policy is approved.

It typically takes insurance companies 10-30 days to process information and verify your coverage before they can provide you with a binder.

It is where the binder comes in, which will allow you to prove your coverage.

A hard copy of your insurance binder is no longer the most common option, especially when you need to show proof of insurance right away.

It’s now more common to receive it digitally, especially with an auto loan application.

What can you do after your Insurance Binder expires?

After your insurance binder expires, you should contact your insurance company to determine if you’ll be covered. If not, you could be at risk for an accident because insurance binders are only meant to serve as temporary coverage.

And because accidents happen, you may consider knowing about Voluntary Accident Insurance. Read more about it here: What Is Voluntary Accident Insurance?

Whether your insurance policy is available or not, you should always contact your carrier to determine the status of your policy. You could also request a copy of the new policy contract if not received one upon issuance.

What is in an Insurance Binder?

The insurance binder should include all the information required for the contract that’s been purchased.

A binder of insurance is a document that identifies who, what and why an insured person or entity is insured. A binder should specify or define what’s covered, the exclusions, and the rates. Such as:

  1. Insurance binder holder name
  2. Insurance company and agent contact info
  3. Binder number
  4. Asset or risk insured
  5. Coverages and coverage limits
  6. Deductibles
  7. Insurance endorsements
  8. Binder term, including effective and expiration dates
  9. Appropriate lender if your investment is secured by financing
  10. Terms and conditions

Frequently Asked Questions

What do Insurance Binders look like?

An insurance binder is a document that outlines several key details about your policy, such as the amount and type of coverage, effective date, names of insured parties, and any limits or deductibles.

What isn’t included in Insurance Binders?

The binder is a summary that offers an overview of the plan’s key coverages until the policy arrives. The binder often won’t define the finer details of coverages, such as special limits on home plans.

How long does Insurance Binders last?

The typical insurance policy is only good for 30-90 days, so it’s important to remain in contact with your provider to ensure that a formal insurance policy will be issued.

Is there a difference between a binder, a quote, and a policy?

Note that a quote is a way to estimate your monthly premium for your selected coverage and information. A quotation is not an offer for insurance or a contract.

You decide whether you like that quote, and then your insurance provider will come up with an insurance binder. That insurance binder is a contract that says once you purchase your home, you will be covered.

To help you through this process, your lender requires an insurance binder. As the loan process moves forward, your mortgagee may change, so it’s important to stay on top of it.

Once you purchase your home, sign the contract, and approve your loan, your binder will dissolve. Now you have an insurance policy for your new house.