Blog What Is An Insurance Binder?

Oct 31, 2022

This is why it’s important to understand binders in insurance

family signing documents

Ever have someone requested you provide them with an insurance binder? Not sure what that is or where to get one?

Sometimes you will need to show proof of insurance to a mortgage, car, or business lender before you actually need the policy. In these situations, you can get a binder for insurance.

In this blog, we’ll provide you with all the information you need to know about binders. Learn how they work, how to get one, and when you will need one.

Insurance binder definition

An insurance binder is a temporary document that confirms an insurer’s commitment to a policy. This agreement between you and your insurer states that a policy will be issued at a future date and serves as proof of coverage until it comes into effect.

The document outlines the basic details that will be in your contract. You’ll want to have one any time you purchase a new plan so that you can prove you have coverage. Some use the terms insurance binder letter/form, or policy binder form to refer to it.

When do you need an insurance binder?

An insurance binder protects you while your policy is formalized. You'll have coverage if you are in an auto accident or must file a claim.

People often require a binder to show proof of coverage. Most often when they purchase a new home and have a mortgage. You may need one when you purchase a new house to prove you have been approved for adequate coverage, a vehicle or buy a commercial property or expensive equipment for your business. Here of some examples of when a binder may be necessary :

Insurance binder for homes

If you are in the process of buying a home, you will want to consider a binder to prove you have adequate coverage for it. You'll speak with an insurer and they will help you settle on a policy that meets your needs. If you are buying coverage a week before closing, getting a binder is highly recommended as you wait for the full policy to be issued and become active.

Insurance binder for auto

Let’s say you bought decided to buy a used car in Ontario. Before obtaining the vehicle, you need to prove that you have coverage on it, as required by law or the dealership. As you compare Ontario car insurance quotes, you let the insurer know you will have the vehicle next month. The binder will prove that the vehicle is insured until you receive it. The binder will temporarily act as proof of coverage until you need the actual policy.

Insurance binder for commercial business

Businesses must show proof of commercial insurance when purchasing a property such as a building or an office space. The binder provides your lender with proof you will have coverage in place when the deal closes and you take possession.

What is included in an insurance binder?

Insurance binders provide all of the necessary information about who has coverage and what is part of the policy. They typically include the following information :

  • What is insured : The binder must clearly state what is insured, or what risk is included. For example, if you are getting a binder for car insurance in Ontario, it should include the vehicle make, model, and VIN. Binders for your home would likely include contents insurance and if it is for a home or condo.
  • The insured : The policyholder and any additional members that are included. If you are leasing a car, the leasing company should be included. For homes, the lienholders or mortgages will be added.
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  • Company and agent : All binders for insurance should state the company and the agent who authorized the policy. Binder numbers should be clearly stated too.
  • Coverage type and limits : Any specific information related to insurance endorsements, deductible amounts, and liability coverage must be included in the binder.
  • Terms and conditions : The dates for when the policy begins and ends will be clearly stated.

What is a fire insurance binder?

A fire insurance binder, or a fire and contents binder, is for proof of fire insurance in homes. It's requested by mortgage lenders when you purchase a new home as proof of temporary coverage.

What is an insurance binder for a mortgage?

This document is requested from a mortgage lender by a new homeowner. Lenders require proof as part of the mortgage application and house closing documentation.

How to get an insurance binder

Getting a binder is a fairly simple and straightforward process. You can only get them through your provider. Here is how they work :

  • Your lender requests a binder.
  • You contact your insurer or broker to get the binder.
  • Your insurer provides you with temporary coverage – your policy is in binder status.
  • Your policy goes through processing. It goes through the underwriting process.
  • Your policy receives approval and goes from binder to active status.

How long is an insurance binder good for?

An insurance binder can be for a specific amount of time and it will have an expiry date. Depending on the type and requirements, they are often valid for 30 to 90 days. Make sure you are aware of the expiry date so you do not miss it. Know when you need your need policy to come into effect.

What happens if an insurance binder expires?

If you have not received your new policy prior to your binder expiring, you could find yourself without any. Without any, you significantly increase your risk and can raise alarms to insurer. If you notice your binder expiry date is approaching, contact your insurer or broker and follow up.

Insurance binder FAQs

Auto lenders often request a car insurance binder to verify you have coverage before they issue financing or deliver the vehicle. Simply request a binder from your insurer.

If you are in the process of real estate acquisition, a title insurance binder can protect the buyers and sellers during the transfer of ownership. In the case of binders, it will act as an active policy during the transition.

Yes. A binder serves as a type of proof of coverage until you receive your actual policy. It is confirmation in writing that you have a policy which your insurer is processing.

A binder for home insurance is a document to verify that you have coverage for a specified property. You can get an insurance binder rather quickly. Depending on your insurer, you can get one on the same day or within a couple of days.

No, they are slightly different. A binder is a temporary document and a declaration page is a summary of your current coverage that will be issued by your invoice company after the underwriting process.

An insurance binder is a contract - it binds your coverage and you use it while waiting for your policy to be issued. A certificate of insurance is a type of proof of coverage that verifies you have coverage for a defined time.

Speak to our experts about your insurance binder

Need an insurance binder? Contact our brokers today. We can help you with your binder requests for your commercial, home, or auto insurance.