Buying a new home is an exciting time. One that is filled with a whole new vocabulary. One common phrase that many people struggle to find a clear answer to is “insurance binders.” We seek to clear the air and eliminate the jargon from conversations about insurance binders, so you have access to the plain facts about this important document.
What is an Insurance Binder?
Essentially, an insurance binder is a single-page document issued by your insurance company that guarantees your home will be insured at the time of close. It is called a “binder” because it binds an insurance policy that doesn’t exist until you take ownership of the home.
What Does an Insurance Binder Include?
There are a few key details that need to be present within the binder document. These things include details about the following.
Risk
This describes what is being insured such as the property and dwelling, and the amount of coverage at the specific address being covered.
Insured’s identity
This is your identity as the insured.
Liability protection
Including the amount of liability insurance.
Deductibles
This will include dollar amounts for different types of incidents, damages, and protections such as deductibles for property, possessions, liability, etc.
Insurance agencies providing protection
This usually includes the name of the insurance provider, the agency from which you purchased the policy, and the agent who is handling your insurance needs.
Type of Coverage
This is a list of the types of coverage you have on your home and may include additional coverages such as flood insurance, umbrella insurance, earthquake insurance, and other add-ons.
Effective date
Includes the date of policy purchase and the date the policy will become ineffective.
Terms of the policy
These are the key details of your insurance coverage and protection.
These are all important details for you, the insured to know and understand, but essential when closing on a home with a mortgage.
What is the Difference Between a Binder, A Quote, and a Policy?
An insurance quote is an estimated premium based on the type of coverage you desire, risks, deductibles, and other factors. It is used to help people compare coverage types and costs before buying homeowners insurance.
A binder is provided once you decide on the quote that you wish to purchase. Once you’ve agreed to the terms and purchased your policy, the binder becomes ineffective, and your policy provides protection for your home and property.
When Do You Need an Insurance Binder?
There are a few times when binders are essential including the following occasions.
- When buying a new property.
- When financing or refinancing a property.
- When buying a new homeowner’s insurance policy.
However, it is critical to remember that the binder is not the policy itself. You will still want to make sure that once you purchase your insurance that your policy offers everything the binder states.
Why do I need an Insurance Binder?
If you are borrowing money or taking out a mortgage to purchase your home, your mortgage lender requires a homeowners insurance binder before closing on the home. In other words, you can’t borrow money to purchase a home without an insurance binder.
How Long is a Binder Good For?
Binders are temporary and generally issued for terms between 30 and 90 days. You want to make sure that you close on your home within the terms of the binder and that a new policy is issued promptly once the binder expires to avoid potentially devastating lapses in coverage.
What Happens If Your Binder Expires?
If your insurance binder expires before your policy is issued, it means you don’t have insurance protection for your home and carry the full risk for accidents, damages, etc. while uninsured. Don’t allow your binder to expire without a homeowners insurance policy in place.
How Do I Get an Insurance Binder?
Fortunately, the process for getting an insurance binder is straightforward. Simply contact your insurance company and request a binder.
Whether refinancing or purchasing a home, your insurance binder is one of the most important documents you need to have. Now that you understand the ins and outs of insurance binders, it’s time to take the next step in your journey toward home ownership.
Arnold Insurance is happy to help you with the documentation you need to close on your new home purchase or when refinancing your home. More importantly, we are here to answer all your questions about policies, protections, and the homeowner’s insurance coverage that meets your needs best. We are your neighbors and understand the needs of our communities when it comes to homeowners’ insurance and more.