Understanding Your Insurance Binder

December 27, 2019

A lot of homeowners, especially those who just purchased a new home, are usually confused about the term Insurance Binder. To be very simple about it, a Homeowners Insurance Binder is a temporary document which acts as your insurance policy while the actual policy has not yet been completed. The sole purpose is to verify that the property is insured with a specific insurance company.

Definition Of A Homeowners Insurance Binder

An Insurance Binder is a document that represents the agreement between you and your insurance provider. It is a confirmation note that an insurance policy will soon be issued and that your property is covered accordingly. This document is crucial because it represents proof of the insurance until you will be able to receive the actual policy.

The binder is typically replaced in the next 30 to 90 days with the actual insurance policy. A binder usually only includes one or two pages. It includes all the terms and information that is needed to be in the policy. For example, you should be able to see information such as an address, insured names, conditions, limitations, exclusions, and endorsements.

The binder may be issued as soon as you request to have a home insurance policy. Since it will take weeks or months to get the actual insurance policy, the binder is considered your “temporary policy”. The binder has a specific term, so you need to make sure to double check the validity date of your insurance binder.

When A Binder Is Useful

A binder is issued when a homeowner needs evidence of having an insurance policy coverage. It is commonly a requirement for financial companies when a person takes out a mortgage. They will usually ask for an insurance binder before you can purchase the property. The lender will not close the loan unless a binder is provided.  Most states require an insurance binder as evidence that the property is insured even when the actual policy is not yet available.

A binder is not the same thing as an Insurance Declaration Page which is typically interchanged. A DEC sheet is simply the first page of your actual insurance policy which highlights all the important parts of your insurance coverage.

Inclusions In Your Insurance Binder

Your home insurance binder will include all the important information about the insurance contract and what you have purchased.

  • Information About the Insured Property – It must include all the information that you need about our insured property. For example, the location and address of your house and the amount of insurance for the property. If you are ensuring a condo or townhouse, it must include the personal property content.
  • Liability Amount – Your binder also includes the liability amount of the coverage with the names of the insured and the property.
  • Deductibles and Limitations – Your binder will include information about any coverage deductible and limitations. Additionally, you will also find any insurance endorsement included which is an important part of your insurance policy.
  • Names of the Insured – The binder will include the names of the insured and specify any additional insured names. For example, your name will most likely be listed as the owner of the property. Other names listed are other owners of the property such as your partner (if you are unmarried). The binder will also include the name of the mortgagee such as your bank or financial institution.
  • Type of Coverage – Your binder will also include the name of your insurance company and the coverage type. For example, if you have HO6 insurance (condo insurance) or if you have a comprehensive homeowners insurance (HO-3).
  • Term of Insurance – Your binder will also include the coverage term. This means it will indicate the day the insurance became effective and the validity date.
  • Name of Agent – Includes the name of the insurance agent who issued the binder. It also includes a disclaimer indicating that the binder is a subject to the terms and conditions of the policy.

The binder is only the summary of the insurance policy and is not meant to give a general overview of the key coverages of the policy. Additionally, the binder will not include any policy wording or definition of terms. You will be able to find these details when you get your actual insurance policy contract.

Issuance Of A Binder

The binder may be issued by an insurance agent on behalf of the insurance company or by the insurance company itself. You must remember that insurance brokers do not have a binding authority to issue such a document since they do not serve as the representative of the insurance company. Your insurance broker can issue a binder but it will not be an official or valid document until signed by an underwriter.