Insurance binder – when is it necessary to have one?

Document serves as proof of coverage until the policy is issued

Insurance binder – when is it necessary to have one?


By Mark Rosanes

When purchasing an insurance policy, the underwriting process can take time as insurance providers need to verify every document submitted before issuing the actual policy. In the meantime, there is a risk that the policyholder gets into an accident and sustains injuries and property damage.

This is where having an insurance binder comes in handy. It serves as proof of coverage to protect the insureds financially against unexpected situations until the formal policy is issued.

What is an insurance binder?

The International Risk Management Institute (IRMI) defines an insurance binder as a “legal agreement issued by either an agent or an insurer to provide temporary evidence of insurance until a policy can be issued.” The institute adds that this type of document should indicate the definite time limit of validity, amount of insurance, type of policy, and perils covered, and must “clearly designate the insurer with which the risk is bound.”

How does an insurance binder work?

An insurance binder is a temporary document that serves as evidence of coverage until the insured receives the formal policy. It is often issued to new policyholders. The validity date varies between insurance providers but typically it ranges from a week to 90 days and ends once the policy has been issued.

Most insurance companies use the template from the Association for Cooperative Operations Research and Development (ACORD), an industry non-profit group that provides data and implementation standards. This is why the document is also sometimes referred to as an ACORD binder.

An insurance binder often consists of a page or two of information, which incorporates the terms and limitations of the policy, including conditions, exclusions, and endorsements. It can be produced within a day or two. Although insurance companies typically provide policyholders with a hard copy of the binder, digital versions are gaining in popularity, especially in instances when proof of coverage is urgently required.

Binders may be issued by insurance companies or agents on the insurers’ behalf. According to the small business information website The Balance SMB, agents can only issue insurance binders if the insurer has given them binding authority, meaning they are allowed to initiate insurance coverage.

“Insurance brokers have no binding authority because they don’t serve as representatives of insurers,” the group explained. “An insurance broker may issue a binder, but the document won’t be valid until it’s signed by an underwriter or other authorized representative of the insurer.”

Another factor to consider is the expiration date. Since insurance binders provide coverage for a limited time only, experts advise policyholders to follow up with their insurer or agent days before the document is set to expire to check up on the issuance of their formal policy and ensure they are still protected past the validity date.

Is an insurance binder the same as a certificate of insurance?

Insurance binders are called by different names, including insurance policy binder, title binder, and insurance card. Some insurers also refer to binders are bind coverage or bind insurance, which means that they have agreed to provide coverage prior to issuing a policy.

According to The Balance SMB, those who purchase insurance coverage through a surplus lines broker or Lloyd’s of London may receive a “cover note,” which is just another term for a binder.

An insurance binder, however, is different from a certificate of insurance. The latter is often given after the formal policy has been issued. While a certificate can be used to provide proof of insurance, unlike a binder, it is not an insurance policy and does not provide any coverage.

“[A certificate of insurance is] simply a summary of the coverages and limits included in the policy,” the group explained.

What information does an insurance binder contain?

An insurance binder identifies who carries coverage and what kind of protection a policy provides. The document usually contains the following details:

  • Insurance binder holder and/or named insured
  • Insurance company and agent contact information
  • Binder number
  • The asset or risk insured
  • Coverages and coverage limits
  • Deductibles
  • Insurance endorsements
  • Premium, or any required payments and fees
  • Binder term, including effective and expiration dates
  • Appropriate lender if the asset is secured by financing
  • Disclosures, terms, and conditions

The binder number should not be confused with the policy number. The former is a series of numbers and letters that are used for identification purposes. The insurance binder will typically list a policy number if it has been issued to extend the term of a policy that has expired.

When is it necessary to have an insurance binder?

Policyholders need an insurance binder if they need to file a claim prior the receiving their formal policies. According to experts, those who have just purchased a new insurance policy should request a binder as it helps verify the coverages they have applied for, apart from confirming that they are insured.  

For those taking out a loan to finance a car, home, or commercial property, lenders typically require insurance as part of the financing agreement. If the actual policy is not available at the time the loan was issued, banks and other lenders often accept insurance binders as evidence of coverage.

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