A home insurance binder is a document provided by your insurer that serves as temporary proof of coverage before you receive your actual policy.
Published May 1, 2020|5 min read
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When you buy a home with a mortgage, your lender will require that you 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 serve as proof of insurance for your home, car, or other types of property when purchased with a loan.
An insurance binder highlights key information about your policy that is necessary to secure a mortgage. In other words, your insurance binder will verify that your policy has the required amount of coverage and will state other helpful information, like your deductible amount, covered perils, and the length of the policy.
The reason you need an insurance binder and can’t simply reference the actual policy is because homeowners insurance doesn’t go into effect right away — you need to go through underwriting before the policy itself is issued. A binder acts as the temporary proof to your mortgage company that you acquired coverage. Keep in mind that the document itself expires, so you’ll need to provide it to your mortgage company shortly after its issuance date.
An insurance binder is a temporary proof of homeowners insurance provided by your insurance company
You’ll need an insurance binder to close on a home mortgage
The binder will include information about your insurance such as policy limits and covered perils
Insurance binders aren’t permanent, they typically expire in 30–60 days
An insurance binder is temporary proof of coverage provided by your insurance company and is typically good for anywhere from 30–60 days. It essentially states to an interested party that you have insurance and enumerates other details like policy limits, coverages, and the length of the policy term.
We live in a day and age where some home insurers are able to underwrite policies faster and more accurately thanks to advances in technology, so it’s possible that you’ll be issued the full policy rather than a binder. But more traditional companies will likely issue you a binder at least at the outset.
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Your homeowners insurance binder should clearly state that your policy has been issued or will soon be in force so that your lender knows for sure that your home is covered. Additionally, the contract should include the following information:
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 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 as a loss payee in the policy — that information will also be included in the binder.
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. If it’s a car insurance binder, you’d include information like the make and model of the vehicle.
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.
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.
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. If your mortgage company requires a hazard insurance policy that covers fire, wind, hail, and vandalism, you’ll want it to be noted in this section that all those are covered.
You’ll also indicate the amount that the home is insured for. Your lender will want proof that the coverage amount on the home is high enough so that it can be rebuilt 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.
The binder should include your policy deductible or deductibles. If you have a separate percentage deductible for wind and hail or hurricane damage, your mortgage company may want proof that the deductible doesn’t exceed a certain amount, like 10%.
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. Insurance binders are required for loans attached to other property as well. If you’re taking out a boat or car loan, you’ll need to provide your dealership with an insurance binder.
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.
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 underwrite and 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.
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