Whether you are about to buy a house on a mortgage or an automobile on loan, having insurance coverage is a definite must. However, you may find it daunting to buy coverage for something that you do not own yet.
This is when the importance of having an insurance binder comes in. It allows you to get your hands on your dream home or vehicle without buying a policy beforehand.
Having a binder from your choice of provider is essential to make sure that purchase will push through. However, before you do so, you must know just about everything that a consumer needs to know for the utmost peace of mind.
A Binder in a Nutshell
When purchasing coverage, many people feel intimidated by insurance jargon. It is one of the reasons why they end up buying what they don’t need or wind up turning their backs on a policy that they can benefit tremendously from.
Luckily, it is not that difficult to understand what a binder is. It is a temporary proof or evidence of coverage before receiving formal insurance policy from the insurance company.
Because it is temporary, a binder has an expiration date. It is usually valid anywhere from 30 to 90 days, although, in some instances, it lasts only for a few days. You should follow up with your provider for the issuance of your formal insurance policy before the binder expires.
Different Types Available
Insurance binders serve different purposes, and this is why different types of them are around. One of them is for buying a house and taking out a mortgage. Another is to get a new car or applying for a car loan.
There is also something for buying a commercial property. Some common examples include an office building, retail store, or storage area.
Naturally, the coverage of one binder tends to differ from the other. For instance, common coverage for buying a house are liability, dwelling, medical payments, and contents. Collision and comprehensive coverage are commonplace when buying an automobile.
Binder vs. Certificate
As the name suggests, a binder binds your coverage. It involves the creation of an insurance contract stating that you have coverage. As earlier mentioned, it is good for 30 to 90 days, or until the issuance of a formal insurance policy.
On the other hand, a certificate of insurance is proof or evidence that you have insurance coverage for a specific period.
Having a certificate shows that you have insurance. In contrast, having a binder shows that you have coverage and that your policy is on its way. You can use an insurance binder to buy a house on a mortgage or an automobile on loan without any hitch.
Issuers of Binders
Unfortunately, not everyone that you talk to about insurance can issue a binder. You can get a binder from either the insurance company itself or an insurance agent. An agent can issue a binder only if he or she has the authority from the insurer to initiate coverage.
Some insurance brokers cannot issue a binder. The binders that some brokers issue may not be valid unless authorized representatives of the insurers sign them.
In case you approach a surplus line broker (someone who places insurance with insurers who are not admitted), a cover note is what you will get. Worry not because a cover note is just another term for a binder.
Just Before You Go
Getting a binder need not be stressful and complicated if you know what it means. With it, you can buy your dream home or vehicle without getting a policy before coming up with the decision.
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