What Is an Automobile Insurance Binder? Hope you had insurance. An insurance binder is a temporary insurance contract that serves to protect the policyholder by proving that he is insured. It also protects the insurance company by giving the company a period of time to confirm the claims of the insured. In auto insurance, the binder is especially important because policyholders sometimes need to make instantaneous, real-time changes to their coverage. What is an Insurance Binder? o An insurance binder is proof of an insuring relationship between an insurance company and the insured. They provide insurance, in exchange for money, over a limited period of time. This allows the insured to be covered from the day he writes a check, but allows the insurance company time to underwrite and issue a full policy. Auto Insurance Binders o Auto insurance binders are in some ways more important than other binders. If an insurable event happens on a homeowner's policy, paperwork at the insurance company's office would prove whether the homeowner was insured. In most states, a driver must carry proof of insurance in the vehicle at all times. This means motorists need instant proof that they are legally insured as soon as they make changes to or open up a new policy. Binding Authority o Insurance binders derive from the "binding authority" of an insurance agent. Each agent's relationship with an insurance company includes an express degree of authority to bind the company in a temporary insurance relationship. This authority defines the length of time the agent can bind the company, and the circumstances in which that authority is not valid. For example, an agent may be able to issue a 10-day binder, but not to a motorist with more than five moving violations in the past year. This binding authority is intended to bridge the gap between making the insurance sale and completing the underwriting and issuance process. Valid Forms o Although verbal agreements can technically serve as an insurance binder, most binders are written. For auto insurance, most agents will fax or email a written statement that serves as proof of insurance through a set date. When you make changes to your insurance policy, or insure a new vehicle, ask for an immediate copy of the binder to keep in your car. Components o Auto insurance binders come in many different formats, but all include the same basic information. They will name the vehicle that is insured by make, model, license plate, VIN and sometimes color. They will name the insured and the insurance company. They will also detail the basic coverage of the policy according to the limits for each kind of insurance and the start and end dates of the temporary coverage provided by the binder. They might also include contact information for the insurance company and deductible information. Why Important? o The auto insurance binder protects the insured in two ways. First, it serves as a written record of the insurance coverage he bought. Second, it is proof of insurance to present at the scene of an accident or if the insured gets pulled over. It protects the insurance company also by allowing a period of time in which to make certain they have correctly assessed the degree of risk a particular motorist represents.
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