When you take out a mortgage on a home, your lender will likely require you to purchase homeowners insurance to protect their investment. After you've been approved for a policy and pay your first premium, your insurer may issue you what's known as an insurance binder, which is a temporary document that can provide to your lender as proof of homeowners insurance.
What is an insurance binder?
An insurance binder is a legal agreement between you and the insurance company that provides proof of insurance for a temporary period of time — typically 30 to 60 days. It highlights key information about your insurance policy that is necessary to secure a home mortgage or car loan.
Insurance binders often include information like your name, address, the amount of coverage in your policy, and the length of the policy, and other information you'll need to close on a mortgage.
Who needs a homeowners insurance binder?
If you’re taking out a mortgage on a house, you’ll need to provide your mortgage lender with proof of home insurance coverage, whether it be your actual policy or a declaration page or your temporary home insurance binder.
In most cases, you'll need to provide your insurer with proof of home insurance no more than three days out from your closing date. To ensure you have enough time to compare home insurance quotes and get the best policy for your needs, consider shopping for coverage a few weeks out from closing.
What’s included in a homeowners insurance binder?
Your homeowners insurance binder should clearly state that your policy has been issued or will soon be active so that your lender knows for sure that your home is covered and their investment is protected. Additionally, the contract should include the information listed below.
Details about the insurance company
Your homeowners insurance binder should indicate the name of the company insuring your home as well as contact information, like a phone number and email. You’ll also need to provide a policy number or customer ID so that it’s easy for the lender to reference your policy.
The named insured and loss payee
The binder must specify whose policy it is, also known as the named insured. If you own the home and you’re married, you and your spouse will likely be listed as named insureds. Your mortgage company will require that it be listed on the policy as a loss payee. Adding themselves as a loss payee on your policy means if there are any changes made to the policy or you file a claim, they will be notified. This information will also be included in the binder.
What type of property you’re insuring
The insurance binder should include a section that identifies the type of property being insured. In the case of home insurance, the binder would include a description of the home and the address of the insured property.
The policy effective date and expiration date
The insurance binder will need to include the policy effective date and expiration date, or when coverage on the home begins and ends. It should also include how long the binder itself is valid. In most cases, binders are valid for up to a month, sometimes longer.
The type of insurance policy
Your insurance binder will also specify the type of home insurance policy being issued. There will likely be different sections for property, general liability, vehicle liability, and so forth.
You’ll want to make sure the property section is filled out and that it specifies what type of damage or loss the property is protected from. It may give you the option to specify if your home insurance is a “basic”, “broad”, or “special” form of coverage. It may also include the option to write in a different coverage form if the binder is for, say, flood insurance and not homeowners insurance.
But if you purchased a standard HO-3 homeowners insurance policy — the policy type for most single-family homes — you’ll want to make sure the “special” form box is checked so that your lender knows your home has all of the necessary coverage.
Perils insured against
This ties in somewhat with the last section — but your binder may have a section where you can indicate which perils are covered by the policy. Standard homeowners insurance protects your home against things like weather-related damage, theft, and vandalism. You’ll want your binder to include as much information about which types of hazards your home is protected against.
Your policy coverage amounts
Your lender will want proof that the coverage amount on the home is high enough so that it can be rebuilt from the ground up in the event of a disaster. You can find the insured value of the home by looking at the dwelling coverage limit on your initial quote. Your insurance company may also input that amount for you in the insurance binder.
Your deductible amount
The binder should include your policy deductible or deductibles, which is the amount you’re responsible for paying on a claim before insurance will cover it. If your policy includes a separate percentage deductible for wind and hail or hurricane damage, your mortgage company may want the binder to include proof that the deductible doesn’t exceed a certain amount, like 10%.
How do I get a homeowners insurance binder?
Once you’ve settled on a policy for your home and paid your premium, the insurer will issue you an insurance binder to act as temporary proof of coverage while they finalize the details of your policy.
If you’re proactive about comparing and buying coverage, it’s possible that your policy will be issued long before closing and you won’t have a need for the binder. But if you’re in a time crunch and buying coverage a week or so out from closing, you’ll need an insurance binder.
Frequently asked questions
Do homeowners insurance binders expire?
Yes, homeowners insurance binders are temporary and typically expire within 30 to 60 days.
When would you use a homeowners insurance binder?
If you need to provide your mortgage lender proof of insurance but your policy hasn’t been issued yet, you’ll need an insurance binder to prove to them that your home is insured.
What’s the difference between an insurance binder and a declarations page?
A declarations page is a sinlge page summary of your homeowners insurance policy details. Like an insurance binder, a dec page can be used as proof of insurance. However, you only receive your dec page once your policy is issued. Until then, you’ll need to use an insurance binder as proof of coverage.
