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What is an Insurance Binder, and Why do You Need One?

If you plan to open up a business such as a landscaping business, you will need to invest money in your equipment, including a truck or van, gardening tools, hoses, and other landscaping equipment. Since you have invested money in this equipment, it is best to have them insured. However, before you purchase an insurance policy, you need to understand how insurance coverage works.

What is an Insurance Binder?

An insurance binder will give you temporary insurance coverage while waiting for the insurance provider to issue you the official insurance policy. An insurance binder is usually composed of one or two pages that provide the coverage information you and an insurance agent agree on.

How does Insurance Binder Works?

While an insurance binder is not the actual insurance policy, it may provide you with temporary coverage until you and the insurance provider mutually agree on the limitations and conditions of your coverage. Once the official policy is issued, the insurance binder is merged into the policy and canceled.

However, not all the terms of the official insurance policy are revealed in the binder. An agent and a client can agree to the terms outlined in the insurance binder, and these conditions will be considered legally binding. However, there are times when the insurance binder may be rejected by the insurance provider, especially in cases when the agent has overextended his binding authority.


An insurance binder bridges the gap until your policy becomes official and permanent.

What is a Binding Authority?

Agents of insurance companies will usually go around and look for prospective clients to offer coverage. However, not all clients will have the same need for insurance coverage. Thus, insurance agents may have the authority to customize the insurance coverage to suit the client’s needs. The agent and the client will then reach an agreement on the insurance policy’s terms and conditions. The agent will then give the client an insurance binder, which gives temporary coverage for the client pending the official policy’s issuance. However, while the agent may have been given a binding authority by the insurance provider to set forth the terms of the coverage, the policy’s final approval will still be decided by the insurance provider.

Some insurance providers do not give their agents binding authority and would like to handle the communications with the client when setting the insurance contract conditions. However, some insurance providers give their agents binding authority. A binding authority will let an insurance agent address the client’s insurance needs, especially in cases of urgency.

So, if you are a business owner and want to get insurance for your equipment, such as your new truck, you may speak with an agent and tell them your concerns and what conditions and limitations you want your insurance policy to have. Once you and the insurance agent have a meeting of minds, the insurance agent can now issue an insurance binder while waiting for the insurer to give you’re the official coverage policy.


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