Car Insurance Binders
The car insurance application process includes contacting various companies for quotes. Once you receive a quote that offers you agreeable terms and a payment amount that is comfortable for you, the insurance company will begin the process of setting up a policy.
However, you won't receive a policy right away because your soon-to-be insurer will need to work out certain details. The insurance industry refers to this process as underwriting. During it, they will be checking to see if you're eligible for automobile insurance. They'll also confirm your risk level. Fortunately, you can drive legally while your insurance company finalizes your policy terms because you'll be issued an insurance binder.
What Is an Insurance Binder?
A basic explanation of an automobile insurance binder is that it is temporary insurance. When you have a binder in place, it acts as insurance until the company completes its underwriting process and issues you an official policy. The auto insurance completion timeframe varies according to the insurance company, but the longest it should take is about 10 days.
About the Underwriting Process
In the insurance industry, the underwriting process is a vital one. It basically determines what your car insurance rates will be. During the underwriting process, your insurance company will confirm the information that you shared with them, using it to decide whether it's a good business decision to insure you as well as finalize what your premium should be.
During the underwriting process, your insurance company will likely modify some of the policy's parameters, ones that were given to you in the initial quote. In most cases, this change is the rate that you were quoted. For instance, if the insurance company's underwriter discovers that you have more traffic violations than you listed on your application, the company will probably change the quoted rate since this makes you a higher risk. Most insurance companies place high-risk drivers in a separate group.
Once the underwriting process is over, you will be issued your official car insurance policy.
An Enforceable Insurance Contract
When insurance companies set up binders, they do not include all of the terms of a contract. This is particularly the case with oral binders. Regardless of how a binder is issued, it is an enforceable insurance contract. Once your insurance company has put it into effect, it will include the policy's terms. It will also feature the same level of protection.
In most cases, you and your insurance agent will not agree specifically on every vital binder term when it is issued, but it will be presumed that you have contemplated these terms as well as the conditions and limitations of the policy provided by the insurance company at the time.
The Difference Between a Binder and a Policy
The biggest difference between these two types of automobile coverage is that binders are temporary whereas the official policy won't be. The policy is what you're purchasing from your auto insurance provider.
Seeking a Binder
If you need a binder, getting approved for one may be based on how you buy your insurance. If you purchase your car insurance online, your insurance provider may give you the option to print a proof of insurance card while notifying you that the verification is temporary. In this case, the company will also confirm that they'll send you the completed policy later with a proof of insurance card.
When you buy car insurance from an agent in-person, he or she will likely give you a verbal binder, but you should ask for this binder in writing. Most states require drivers to keep their proof of insurance card with them, so a printed one will allow you to do this.
Once the Policy Is Issued
Once the insurance company issues your policy, the binder will be dissolved automatically. Make sure that you understand and are comfortable with the terms of your binder. If you aren't currently covered and the binder goes into effect in a day or two, you could wind up without coverage for a claim during this small window.
In addition, while oral binders are issued, it is best to get it in writing. By doing so, you'll avoid claim problems. Binders keep you insured when you're waiting for your insurance company to establish your auto insurance policy. They also keep you from insurance lapses that would violate your state's laws.