What is a homeowners insurance binder and when do you need one?

An important part of buying a home is figuring out the different types of insurance you may need, such as homeowners insurance. Before you buy homeowners insurance and close on your new house, you may be issued an insurance binder. But how do you know if you need an insurance binder, and how does the process for getting the insurance contract work?

Below, we’ll discuss what’s included in a homeowners insurance binder, what it can be used for and how to get one from your insurance company.

What is an insurance binder?

An insurance binder is a temporary contract between you and your insurance provider that proves you’ve purchased homeowners insurance coverage. The binder is a placeholder for a formal insurance policy. It can provide you with full coverage while you await a more formal issuance.

Your homeowners insurance binder will contain all of the details of your new insurance policy and act as your proof of insurance for a potential mortgage lender.

An insurance binder is different from an insurance declaration page, which summarizes the coverage provided by your insurance company. When your declaration page becomes available, that’s usually when your binder expires, because you no longer need “temporary” proof of insurance coverage.

When do you need a homeowners insurance binder?

Home insurance binders are used to show proof of insurance coverage on a property. Binders are typically used to show evidence of things like property liability coverage to a lender, or when buying a new property.

Your home insurance binder will be required for the underwriting process and before you close on a mortgage. Binders often include information about your insurance coverage, like policy limits.

What’s included in a home insurance binder?

Your homeowners insurance binder will include a description of your home, the address of the property you have insured, the type of property you have insured, the name of your insurance company and the coverages attached to your policy.

Let’s go over all the information that’s included in your insurance binder contract in more detail.

The named insured and loss payee

The “named insured” is going to be whoever owns the policy – this could be an individual or a couple. Your binder must show exactly who owns the insurance policy, so this section is critical.

The insurance binder may also show any additional insureds, which include co-owners of a property.

A “loss payee” can be an individual or business that gets listed on your insurance policy as having the first right to any claims you might have filed so that they can protect their financial interest.

Your mortgage lender would be an example of a loss payee. They would want to make sure that they get paid out on any remaining mortgage costs if you file a claim or make changes to your policy coverage.

Details on the insurance company

Typically, a home insurance binder will include the name of the insurance agency or agent and the name of the insurance company you purchased coverage through.

You will also find the mailing address and contact information for both the insurance company and your agent (if you used one).

Details on the type of insurance policy

The insurance binder will also show the type of insurance coverage you have on your home. Here are a few different coverage options you may include in your home insurance policy.

• Dwelling coverage: This coverage option will be used to repair or rebuild your physical home if it’s damaged or destroyed by a covered loss.
• Personal property coverage: Personal property insurance coverage is used to cover things like your laptop, clothing or any of your personal items if they are stolen, lost or destroyed due to a covered loss.
• Other structures coverage: If you have a detached garage, a pet house or even a shed, your other structures coverage will take care of this.
• Medical liability coverage: Also called medical payments coverage, medical liability coverage usually kicks in to cover medical expenses if someone is hurt while visiting your home.

Perils your policy insures against

The most common type of homeowners insurance is an HO-3 policy. Also known as a Special Form policy, it will cover both open perils and named perils.

Essentially, you want your binder to have as much information as possible about the perils your policy covers. This information should be on your binder because it will make your closing process much easier and allow you to review your coverage quickly.

Coverage limits of your policy

Some of the most important information shown on a binder will be the coverage limits of your policy. To close on a mortgage, your binder will need to show the specific limits on your policy to make sure there is enough coverage for your home.

Your binder should also include information such as the homeowners insurance deductible amount and any special coverages or limits.

Let’s discuss the coverage limits of your homeowners insurance policy in greater detail.

• Policy limits: Each part of your policy will have a different policy limit; your personal property limit will be different from your personal liability limits.
• Special coverages: This is where the insurance company can notate any special coverages such as items added to the policy.
• Deductibles: Your deductible is the amount of money you’ll pay out of pocket before the insurance company starts to assist with coverage.

How to get a Homeowners insurance binder

Once you pay your first month’s premium, your insurance company will issue you a homeowners insurance binder as temporary proof of insurance coverage during the underwriting process to finalize your policy specifics.

However, suppose you know how much homeowners insurance you need and buy your policy as soon as you can. In that case, it’s possible to have an approved policy before going to the closing table, which won’t require you to have an insurance binder.

You can contact your insurance company directly if you need a hard copy of your insurance binder or a copy of your in-force or formal policy.

Insurance binder FAQs

Below, we answer a few additional questions you may have about homeowners insurance binders.

Do home insurance binders expire?

Yes, home insurance binders usually expire within 30 – 90 days and will not continue to cover your property once they end. You should make sure you have either a copy of your actual insurance policy or an insurance declaration page before your binder reaches the expiration date.

What’s the difference between an insurance binder and a certificate of insurance (COI)?

An insurance binder is temporary proof of coverage and evidence of the insurance policy. The provider can issue a binder when proof of insurance is needed.

A certificate of insurance (COI), also called a declarations page, is a summary of your homeowners insurance policy details and proof of insurance. The policy is generally officially issued after the underwriting process is complete, replacing the insurance binder.

Do all insurance companies offer insurance binders?

Most insurers are now able to issue official policies quickly enough, making a temporary binder unnecessary during the process. Some insurance companies may even skip the binder by writing a future effective date of coverage, which can still be accepted by mortgage lenders as proof of homeowners insurance coverage for new policyholders.

What is an auto insurance binder?

When you buy a new car, you may be issued a car insurance binder until your insurance provider issues the formal policy. Like a homeowners insurance binder, an auto insurance binder provides temporary coverage and evidence of insurance.

If you can’t secure a formal auto insurance policy right away, your dealership may require an insurance binder so you can safely (and legally) drive your new vehicle.

Can my insurer cancel my homeowners insurance binder?

An insurer may decide to cancel your insurance binder if they determine you do not meet underwriting standards. However, because binders still provide coverage, the insurance company is required to send you a notification of cancellation in advance.

It’s a good idea to check with a local insurance agent as these terms and conditions can vary by state.

The bottom line: Why a homeowners insurance binder is important

While it’s super easy to put something like a home insurance binder at the end of the list when you’re purchasing a new home, you shouldn’t. It’s essential to have your binder or to already have an active policy when you’re closing on your new home.

Feeling more prepared for the home buying process? Secure your mortgage approval today with Rocket Mortgage^®.