What Does it Mean to Bind Insurance?

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Getting insurance– for anything, be it for your new business, car, or home—can be a daunting task. It’s something you start to research, then stop. Maybe you have a few quotes in your inbox but haven’t done anything with them yet. Or you may even put off the entire process until you have no other choice–which can lead to rushed decisions and having to switch providers before you know it. But what most people don’t realize is that obtaining insurance doesn’t have to be that complicated or painful at all. It really comes down to understanding a few essential terms and parts of the process. Plus finding the right broker who can help translate when need be can also help.

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And that brings us to our current topic: What exactly does it mean to bind insurance? Simply, to be “bound” is insurance jargon for coverage that is in place, but your policy is not entirely finalized just yet.

What is an Insurance Binder?

Binding insurance is necessary so that you can provide proof of sufficient insurance coverage if required by a lender or other organization in lieu of your finalized policy. An insurance binder is a temporary policy that is typically issued before your formal policy. The underwriting process, where things like your income, assets, debt, and property details are verified, can cause the finalization to take a few days. In the meantime, the policy holder could experience and fall victim to any number of risks that they are trying to protect themselves and their businesses against. So the insurance binder acts as a legal agreement that protects the newly insured throughout this time.

To complete the insurance binding process, you’ll need an independent insurance agent in addition to the chosen insurance provider. Oftentimes companies will already have these individuals in mind, as the independent agents need approval from the provider in order to bind the insurance. Further, if you do have to find your own, it’s important to know that independent agents must be licensed in the state where the policy is to be issued.

What Does an Insurance Binder Look Like?

A verbal or written binder is generally used to address the time period between the effective date of coverage and when the policy or endorsement is issued by the insurance company. Your insurance binder is a document that can be as short as one page, or include various pages. You may first agree to insurance binding in person or over the phone before you receive the actual documents. If this is the case, the provider will likely note that the binding is in place once your conversation has come to a close. The written copy will declare things like the time limit of validity, amount of insurance, limits, deductibles, type of policy, and perils covered. Many insurance companies use a form issued by the Association for Cooperative Operations Research and Development, called an ACORD binder form. But some companies create and issue their own binder, so don’t be surprised if you see that your document comes in a different format.

How Long Does an Insurance Binder Last?

While the process to finalize your insurance policy should only take about a week or two, insurance binders are typically valid for 30 days. This means that you should have your final policy in place before the binder even expires. However, if it takes longer than 30 days to obtain the final policy, the insurer may choose to issue a revised binder to keep coverage intact until the policy is completed.

Will I Always Need an Insurance Binder?

Thanks to the insurance world becoming more agile, there’s many times that an insurance binder won’t be required. Embroker, for instance, is known for quick policy turnarounds, with some coverage plans being finalized on the same day that the request is made. Because we’re a digitally-native business insurance company, we use modern technology to eliminate the inefficiencies that increase time and money spent throughout the insurance shopping process. Embroker’s main goal is to use the latest technology to make policies more tailored and easier to purchase.

More Things to Keep in Mind

There are many factors that could potentially arise throughout the underwriting process that could impact your final policy. Given insurance binders are a temporary contract, the actual coverages, limits and terms of the final insurance policy may change between the time the binder is issued and when the policy is issued. Not to mention that while it’s not typical, the insurance provider does maintain the right to cancel a policy before issuance. So you could be left without a final policy once the binder expires.

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