When you buy a home with a mortgage, your lender will require you to get a homeowners insurance policy and provide proof of coverage before you can close on the loan. Once you buy a policy, your insurance company will issue you an insurance binder, which is a document that can temporarily serve as proof of insurance while you wait to receive your actual policy documentation.
What is an insurance binder?
An insurance binder is a legal agreement between you and the insurance company that provides proof of insurance for a temporary period of time — typically 30–60 days. It highlights key information about your insurance policy that is necessary to secure a mortgage or auto loan.
If you’re taking out a mortgage on a new house, you’ll need a homeowners insurance binder to provide evidence to your lender that your policy has the required amount of coverage. It also includes other helpful information, like the types of losses, or perils, your home is protected against and the length of the policy.
Who needs a homeowners insurance binder?
If you’re taking out a mortgage, you’ll need to get an insurance binder from your insurer after purchasing coverage. Your lender will require this evidence to ensure its investment is protected before letting you close on the loan.
Your lender will typically require your insurance binder at least three days out from the closing date, but it’s also possible they’ll require it weeks in advance. Be sure to check with your lender and give yourself time to shop, compare, and make an informed home insurance purchase.
What’s included in a homeowners insurance binder?
Your homeowners insurance binder should clearly state that your policy has been issued or will soon be active so that your lender knows for sure that your home is covered and their investment is protected. Additionally, the contract should include the information listed below.
Details about the insurance company
Your homeowners insurance binder should indicate the name of the company insuring your home as well as contact information, like a phone number and email. You’ll also need to provide a policy number or customer ID so that it’s easy for the lender to reference your policy.
The named insured and loss payee
The binder must specify whose policy it is, also known as the named insured. If you own the home and you’re married, you and your spouse will likely be listed as named insureds. Your mortgage company will require that it be listed on the policy as a loss payee. Adding themselves as a loss payee on your policy means if there are any changes made to the policy or you file a claim, they will be notified. This information will also be included in the binder.
What type of property you’re insuring
The insurance binder should include a section that identifies the type of property being insured. In the case of home insurance, the binder would include a description of the home and the address of the insured property.
The policy effective date and expiration date
The insurance binder will need to include the policy effective date and expiration date, or when coverage on the home begins and ends. It should also include how long the binder itself is valid. In most cases, binders are valid for up to a month, sometimes longer.
The type of insurance policy
Your insurance binder will also specify the category of policy under which the property is being insured. There will likely be different sections for property, general liability, vehicle liability, and so forth.
You’ll want to make sure the property section is filled out and that it specifies what type of damage or loss the property is protected from. It may give you the option to specify if your home insurance is a “basic”, “broad”, or “special” form of coverage. It may also include the option to write in a different coverage form if the binder is for, say, flood insurance and not homeowners insurance.
But if you purchased a standard HO-3 homeowners insurance policy — the policy type for most single-family homes — you’ll want to make sure the “special” form box is checked so that your lender knows your home has all of the necessary coverage.
Perils insured against
This ties in somewhat with the last section — but your binder may have a section where you can indicate which perils are covered by the policy. Standard homeowners insurance protects your home against things like weather-related damage, theft, and vandalism. You’ll want your binder to include as much information about which types of hazards your home is protected against.
Your policy coverage amounts
Your lender will want proof that the coverage amount on the home is high enough so that it can be rebuilt from the ground up in the event of a disaster. You can find the insured value of the home by looking at the dwelling coverage limit on your initial quote. Your insurance company may also input that amount for you in the insurance binder.
Your deductible amount
The binder should include your policy deductible or deductibles, which is the amount you’re responsible for paying on a claim before insurance will cover it. If your policy includes a separate percentage deductible for wind and hail or hurricane damage, your mortgage company may want the binder to include proof that the deductible doesn’t exceed a certain amount, like 10%.
How do I get a homeowners insurance binder?
Once you’ve settled on a policy for your home and paid your premium, the insurer will issue you an insurance binder to act as temporary proof of coverage while they finalize the details of your policy.
If you’re proactive about comparing and buying coverage, it’s possible that your policy will be issued long before closing and you won’t have a need for the binder. But if you’re in a time crunch and buying coverage a week or so out from closing, you’ll need an insurance binder.