Insurance binder – when is it necessary to have one?

What is an insurance binder?

The International Risk Management Institute (IRMI) defines an insurance bond as “a legal agreement issued by an agent or insurer to provide temporary proof of insurance until a policy can be issued.” The institute adds that this type of document must specify the exact period of validity, the amount of insurance, the type of policy and the risks covered, and must “clearly indicate the insurer to whom the risk is linked”.

How does the insurance file work?

The insurance binder is a temporary document that serves as proof of coverage until the insured receives the official policy. Often issued to new policyholders. The expiration date varies between insurance providers, but typically ranges from one week to 90 days and expires after the policy is issued.

Most insurance companies use the template from the Association for Cooperative Operations Research and Development (ACORD), a nonprofit industry group that provides implementation data and standards. This is why the document is sometimes also called an ACORD binder.

An insurance binder often consists of a page or two of information that includes the terms and limitations of the policy, including conditions, exclusions, and endorsements. It is made in a day or two. Although insurance companies typically provide policyholders with a hard copy of the binder, digital versions are gaining popularity, especially in cases where proof of coverage is urgently required.

Binders may be issued by insurance companies or agents on behalf of insurers. 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 do not have binding authority because they do not serve as representatives of insurers,” the group explained. “An insurance broker may issue a binder, but the document will not be valid until it is signed by an insurer or other authorized representative of the insurer.”

Another factor to consider is the expiration date. Because policy folders only provide coverage for a limited period of time, experts advise policyholders to contact their insurer or agent days before the policy expires to verify the issuance of their official policy and make sure they are still covered after the expiration date.

Read more: Brokers approve digital proof of insurance solution

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

Insurance binders go by a variety of names, including an insurance policy binder, a title binder, and an insurance card binder. Some insurers also refer to binding binding coverages or binding insurance, which means they have agreed to provide coverage before a policy is issued.

According to The Balance SMB, those who buy insurance cover through an excess lines broker or Lloyd’s of London can get a ‘cover note’, which is just another term for a binder.

However, an insurance binder is different from a certificate of insurance. The latter is often given after the official policy is issued. Although 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] a simple summary of the coverages and limits included in the policy,” the group explained.

What information does the insurance file contain?

The insurance bond identifies who carries coverage and what type of protection the policy provides. The document usually contains the following details:

  • Holder of an insurance file and/or named insured
  • Insurance company and agent contact information
  • Folder number
  • The insured asset or risk
  • Coverages and Coverage Limits
  • Self-participation
  • Insurance endorsements
  • Premium or all necessary payments and fees
  • Term of connection, including effective and expiration dates
  • A suitable creditor if the asset is secured by financing
  • Disclosures, Terms and Conditions

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

Read more: Cracking Certificate of Insurance Points with Technology

When is it necessary to have an insurance file?

Policyholders need an insurance binder if they need to file a claim before receiving their official 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, in addition to confirming that they are insured.

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