Homeowners Insurance Binder: What Is It, And When Do You Need One?
Sa El4-minute read
April 22, 2021
The most tedious part of buying a home will be figuring out the different types of insurance you may need.
However, figuring out if you need a homeowners insurance binder to close on your home isn’t that complicated.
In this post, I will discuss what’s included in a home insurance binder, when one is required, and how to get one from your insurance company.
What Is A Homeowners Insurance Binder?
A homeowners insurance binder is your temporary proof of home insurance coverage provided by your insurance company.
You might be getting a homeowners insurance binder confused with a home insurance declaration page, but they aren’t the same thing.
Your insurance binder is proof of temporary coverage, and your declaration page summarizes the coverage provided by your insurance company.
So, when your declaration page becomes available, that’s usually when your binder expires because you no longer need “temporary” proof of coverage.
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When Are Homeowners Insurance Binders Used?
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 coverage, like policy limits.
What’s Included In A Home Insurance Binder?
Your homeowner 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.
The Named Insured And Loss Payee
The “named insured” is going to be whomever owns the policy – this could be an individual or a couple. Your binder must show exactly who owns the policy, so this section is critical.
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 lender would be an example of a loss payee. They would want to make sure that if the home was lost due to a covered loss, they would still get paid out on any remaining mortgage.
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. This could include personal property insurance, general liability coverage, loss of use, medical liability, and other structures coverage.
Your dwelling coverage: Used to repair or rebuild your physical home if it’s damaged or destroyed by a covered loss.
Personal property coverage: 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, it usually kicks in to cover medical expenses if someone is hurt while visiting your home.
Your mortgage lender might not care if you have enough medical coverage, but it’s essential that you understand how much coverage you have and that you have it in writing.
Perils Your Policy Insures Against
The most common type of homeowners insurance is an HO3 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 deductible amount and any special coverages or limits.
- Your deductible: The amount of money you will pay out-of-pocket before the insurance company starts to assist with coverage.
- 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 covering additional items added to the policy.
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 coverage during the underwriting process to finalize your policy specifics.
However, suppose you are aggressive at doing your research (unlike 70% of home buyers) 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 need a binder.
You can contact your insurance company directly if you need a copy of your insurance binder or a copy of your in-force policy.
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 homeowners policy or an insurance declaration page before your binder expires.
The Bottom Line
While it’s super easy to put something like a home insurance binder on the end of the list when you are purchasing a new home, you shouldn’t.
It’s essential to have your binder in order or to already have an active policy when you are trying to close on your home.
You should learn as much as possible about the home buying process, especially if you are first-time home buyer.
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