What Is An Auto Insurance Binder?

An auto insurance binder is a temporary coverage with immediate effect and a very restricted time span.

When you apply for a new policy, you won’t get it immediately. The insurer has to go through the so-called underwriting process where they analyze your credentials and decide whether or not to insure you and, if so, how much to charge you. There are cases, however, when you will need insurance immediately, and this is when you will get this temporary form of insurance.

Who needs an auto insurance binder?

There are several scenarios where you are going to need an auto insurance binder.

• Buying a new financed vehicle. The leasing company will require proof of insurance to allow you to drive the car off the lot, and the insurance company will ask for ownership papers when issuing an insurance policy for that car. The solution is a temporary binder that will work till the formal policy is issued.
• Switching carriers when the policy is about to lapse. It may take up to 60 days for an insurance company to issue a new policy (that’s how much the underwriting process can take). If your old policy is about to expire, you may find you are uninsured in the mean time. A binder issued by the new company would count as proof of insurance.

Written vs. verbal insurance binder

The binder may be issued verbally or in writing. Once the insurance agent has entered the information in the system you should, technically, be safe to drive. You are, however, recommended to get a written agreement if you have the option, or at least a written confirmation (like a printed email) just to be on the safe side and not get into “he said, she said” kind of situation.