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Definition of Insurance Binder
An insurance binder is a temporary authorization of coverage issued prior to the actual insurance policy. It can be in written or oral form but as a rule it is a written document that records the essential provisions of a contract of insurance. So it provides temporary insurance coverage for a specified time until a formal policy is accepted or denied. At this time a permanent policy must be obtained. Usually this period ranges from 10 to 30 days, but it may vary. The insured as well as the insurance company has the right to cancel the binder.
A binder can be issued by either an insurance agent or company and must provide the following information: name of the insured, type of insurance coverage, limits of insurance, covered perils, name of the insurance company.
For example, if you need coverage, but your credit and past insurance history should be researched, you can not get a legal coverage. Then your insurance company or agent may give you a binder that will be in force for some period of time. The binder gives all the same coverages and rights as you would have with a regular insurance policy, but would automatically cease after a specified period of time.