What is a binder in the context of insurance?

In the context of insurance, a binder is a temporary coverage agreement between the insurer and the insured. It provides immediate protection for the insured while the formal policy is being drafted or finalized. This is particularly useful in situations where the insured needs coverage to begin immediately, such as when purchasing a home or automobile. A binder assures the insured that they have protection in place, even before the official policy is issued.

The reason this is particularly relevant is that it allows for a smoother transition into coverage by addressing immediate needs without the delay that can occur in the full underwriting process. It typically outlines the same coverage terms that will be found in the eventual full policy.

In contrast, a permanent policy contract refers to a finalized insurance policy that is established after all underwriting processes are complete. A claim application form is used to report incidents and request benefits under an insurance policy, which is unrelated to the provisions of temporary coverage. An endorsement on a policy is a modification to an existing insurance contract that alters its terms or coverage, distinct from the concept of providing temporary insurance through a binder.