Binder

Glossary

When you get a binder from your insurance company, you’re getting instant coverage. Binders are usually good for a set number of days in order to give the applicant coverage while the insurance company has time to research the applicant’s insurance history, determine the type of risk, and decide whether to offer a formal policy.

Why would I need a binder?

It may seem safe to just wait until the insurance company offers you a formal policy. But what if the pipes burst in the apartment above yours before you get proper coverage? Or what if your dog bites your new neighbor? Also, an insurance company that refuses to give you a binder may not be the type of company you’ll want to do business with.

In a sense, a binder policy is similar to gap insurance. Gap insurance is important when financing a new vehicle purchase in case anything should happen to that vehicle shortly after purchase. If you owe more money on a vehicle than it is worth, and the vehicle gets totaled, gap insurance will cover any amount (less your deductible) that your car insurance will not. How is this similar to a binder policy? If you move into an apartment or rental home without proper insurance in place and something happens (like the bursting pipe mentioned in the above paragraph), you must absorb the entire loss. However, if you’re in the process of obtaining coverage, and the insurance company has granted you a binder, that binder will cover the loss.

An insurer can rescind a binder, but usually a certain number of days’ notice to the insured is required. This typically occurs when an insurance company decides not to insure, and the notice period gives the insured time to approach another insurance company for a policy without losing coverage in the meantime. In some states, the insurance company may charge a premium for this service.

Proof of Insurance

A binder is also important if your landlord requires proof of insurance prior to move-in. These days, most leases require you to carry at least renter’s liability insurance in order to protect the landlord from any damages you may cause while a resident, and from liability if someone visiting you gets injured while on the property. Liability coverage will not protect your personal belongings, so you would need to get personal contents insurance. If you have roommates, your insurance typically will only cover you, so they would need to obtain separate coverage for themselves. An exception might be if your roommate happens to be your brother, as some policies cover family members of the insured.

Some potential hazards of living in a rental property that you may want to consider when deciding whether to get personal contents coverage include fire (which could start from a careless smoker in an adjoining unit) and theft (which may be more prevalent in apartment housing). If you do have pets, you will want to make sure they are covered under your policy.