What is a binder in insurance terminology?

A binder in insurance terminology refers to a contract that provides temporary coverage until a policy is formally issued. This means that when a binder is issued, it serves as an immediate proof of insurance and guarantees that coverage is in place for the insured, even though the formal policy has not yet been finalized. This aspect is particularly important in situations where immediate coverage is necessary, such as when someone is purchasing a new home or vehicle, and they need insurance to take possession.

In contrast to permanent insurance coverage, which is long-term, or documentation that outlines exemptions or details of insurance claims, a binder is a short-term solution that ensures there is a coverage gap during the waiting period for the formal policy. This temporary nature allows clients to proceed with their transactions confidently, knowing they have insurance coverage.