What is an Insurance Binder

Insurance Agents Binding Authority

The general definition of an Insurance Binder is a temporary insurance contract that provides proof of coverage until the permanent policy is issued.

A Binder is insurance coverage and can be offered verbally or in writing from an agent or insurance company. Binders offer temporary insurance coverage for a stated period of time to complete underwriting and issuance of the insurance policy is finished. The actual point of coverage may be different from state to state and may also be different for depending on the policy.

Insurance companies appoint an agent and give them permission to “Bind” a specific amount of insurance under the terms of the company rules and requirements. “Binding authority” is agreed on between the company and the agent. An insurance agent may have a variety of different binding authorities with different companies, or products within the company. Policy language usually sets an effective date for new insurance often it’s the next day at 12:01 AM. This means that many agents may not have authority to issue a binder if it needs to be effective immediately.

When a customer contacts an agent for an insurance policy the agent must determine which insurance company and product the customer qualifies for, and what risk the customer is asking the insurance company to cover. At the same time the agent must decide what his binding authority with the insurance company actually is.

A new customer might come to an insurance agent and report that he has had a problem with his last insurance company and the policy lapsed two times due to lack of payments. The new agent may have the binding authority to offer the new customer an auto insurance policy for a period of 10 days. The new insurance company may decline to issue insurance unless the premium is fully paid. If this ends up the situation the insurance company may issue a notice to the new customer.

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