Glossary
Binder, defined
A temporary written confirmation that coverage is in force while the full policy is being issued. It names the insured, the property or vehicle, the coverages and limits, and the effective date, and it is replaced by the policy documents when they arrive.
In practice
Lenders and closing agents ask for one to prove a house or car is insured before money changes hands. A binder is only as good as the application behind it; if the application was inaccurate the carrier can decline to issue the policy, so the binder period is not a time to relax about details.
A worked example
Suppose you close on a house on a Friday and the carrier cannot issue the full policy until Tuesday. The agent issues a binder dated Friday, the closing agent accepts it, and a kitchen fire on Saturday is covered. Suppose the application had omitted a wood stove; the carrier could refuse the policy and the binder would end with it. Hypothetical.
Applies to: Home InsuranceAuto Insurance