I am often asked. “What is an insurance binder?” The short of it is that an insurance binder is a document that provides temporary evidence of insurance until the underwriting process is complete and the policy can be issued.
An insurance binder is not just a nice folder that you use to hold your insurance documents. Rather, an insurance binder is a one-to-two page document that will act as a temporary insurance policy.
What is an insurance binder? When you purchase insurance, there is usually an awful lot of paperwork to carry out. That means it can take a little bit of time before you actually receive your policy and you are fully insured in whatever way you need. This leaves you vulnerable to things that could go wrong, and so of course the role of the binder is to provide you with temporary proof of insurance until your policy is issued. Insurance binders remain in effect for a limited period of time – usually 30 days.
What is an insurance binder? It is different than a certificate of insurance. A certificate of insurance is proof of insurance for an issued policy, but in this case the policy is already in effect and the certificate is merely used as evidence. Certificates of insurance are something you might need to send to a third party in order to prove that you are covered.
How Insurance Binders Work
In most cases, insurance binders will be provided by the insurance company or insurance agent. The agent will only be able to issue this if they have authority from the insurance company and the scope of that authority will normally be defined in a contract held between the agency and the insurer.
Insurance brokers typically can’t issue binders because they don’t work for the companies and therefore aren’t granted binding authority.
These days, a lot of insurers will issue binders on a standard form called an ACORD 75, or issue a letter. These insurance binders will normally include just a summary of the policy. That will normally include:
- Name of the agent with contact details
- Your company’s name and address
- Name of the insurer
- Binder number (for identification purposes)
- Effective date range
- Policy number
- Description of the client’s operation/property/vehicles etc.
The binder number will only apply to the binder itself and not the policy. The policy number meanwhile is only issued if the binder has been issued at a time when the policy is already complete – for instance if you are extended a policy that has expired.
For example, if you were to get a letter informing you that your insurer had stopped writing insurance policies for people in your circumstances, then they might provide a binder that extends your coverage for 60 days following the termination of the policy. This will give you time to find another policy.
Insurance Binder Layout
Normally, a binder will be divided into numerous sections. These tend to include:
- Commercial property
- General liability
- Workers’ compensation
For every type of coverage that you purchased, your binder should provide you with information regarding the limits. The binder might also list endorsements.
Other information that is often included:
- General liability – the basis of coverage (whether claims-made or occurrence)
- Commercial auto liability – categories of automobiles covered
- Commercial auto physical damage – coverage included and deductibles
- Property – explanation of perils covered, deductible, coinsurance percentage
- Excess liability – the type of policy (whether umbrella or other)
Keep in mind that when using building or vehicle insurance secured by a loan, the lender’s name will also need to be included.
Insurance Binder Conditions
What is an insurance binder? Binders normally include conditions and these will explain the terms and limitations of the policies. In short, this is simply a brief version of a regular policy.
You might find that your binder includes the cancellation provisions. These explain how and under what circumstances the binder may be cancelled. Usually this happens if for whatever reason, the insurer determines that your company doesn’t meet its underwriting standards.
Keep in mind though that you are protected by the law: the same laws that govern cancellations of policies are in effect here. Should your binder be cancelled, it must do so within the required time period. Note that the precise requirements can vary depending on your state. The good news is that binder cancellations are usually rare, as most checks will already have been carried out.
Finally, a binder might outline specific conditions that only apply in particular states. These will only come into effect if your business operates in those regions.
Ethan’s Last Word
Insurance binders are a type of proof of insurance that you can get while waiting for your policy to be issued.