What is a binder in insurance terms?

A binder in insurance terms refers to a temporary agreement that provides insurance coverage until a formal policy is issued. This means that once an insurer and a client agree on the terms of a binder, the client is protected under the insurance coverage specified in the binder, even though the official policy documents may not yet be ready. This mechanism assures the insured that they have immediate coverage while the full policy is being processed.

This setup is particularly useful in situations where immediate coverage is important, such as in real estate transactions or when purchasing new vehicles, where the insured may need coverage to protect against potential risks right away. The binder effectively serves as a placeholder, ensuring that there is no gap in coverage during the transition phase to the issuance of the formal policy.