Think of an automobile insurance binder as a contractual placeholder. It is a contract that holds the place of your insurance coverage until your actual policy is issued. It’s your physical evidence that coverage is in effect. Auto insurance binders hold the same amount of weight as your automobile insurance policy does.
Why an Auto Insurance Binder
Before an auto insurance binder can be issued, an auto policy must in effect. In insurance speak, placing a policy in effect is called binding the coverage. Once the auto insurance coverage is bound, the insurance company or its agents may issue an auto insurance binder which is evidence that coverage is in place. You’ll need such evidence when it comes to financing or leasing a vehicle.
Auto insurance binders are usually one-page documents that include information such as the coverage effective and expiration dates, named insured, insurance company and basic terms and conditions such as limits and deductibles. Because auto insurance binders are usually a one-page document, it cannot list all of the policy terms and conditions. It is just a temporary placeholder.
Auto Insurance Policy Issuance
Once the actual automobile insurance policy is issued, it supersedes the binder. Therefore, it is strongly recommended that you review the insurance binder to make sure it is in agreement with the actual policy. You don’t want to have insurance binder with different effective/expiration dates than the dates as listed on the policy.
Prudent insurance brokers and agents check the policy and compare it to the binder to make sure everything is in agreement before sending the actual policy out to the insured. If there is a discrepancy between the policy and the binder, the agent/broker will notify the insurance company and the insurance company will endorse the auto insurance policy in order to correct the discrepancy.
Power of the Auto Insurance Binder
Keep in mind that even though an auto insurance binder is one page long, it has the same power as your auto insurance policy. Therefore, if you get into an automobile accident before your actual auto insurance policy is issued, you are covered.
Keep your insurance binder in a safe place until the actual policy is issued.