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Most mortgage lenders require you to maintain a homeowners insurance policy to cover your home for the duration of your mortgage. This can be challenging in some situations when home insurance underwriters require additional time before they can issue your policy and put your coverage in place. For example, the underwriting process may take several weeks, or there may be additional steps needed such as requiring inspections and other checks to ensure your home is in good condition. This can leave you in an uncomfortable in-between period where you do not have an insurance policy, but are ready to move into your home. Home insurance binders can help cover this gap period. Bankrate explains what a homeowners insurance binder is, when you need one and how to secure one.
What is a home insurance binder?
If you’re wondering what a homeowners insurance binder is, it’s essentially an agreement between a homeowner and an insurance provider, offering immediate coverage temporarily until a formal insurance policy is issued. In other words, a home insurance binder is a temporary contract that provides proof of insurance while your homeowners insurance policy is going through the underwriting process. This temporary agreement between you and your insurance company is usually effective for 30 to 90 days. Once your formal policy is issued, the binder expires.
The insurance company may automatically issue a homeowners insurance binder after you finalize the application. If not, you can request a binder from your insurance agent or the company. It usually contains one or two pages of essential information about your policy, like the effective and expiration dates, named insurance information, coverage levels and property address.
Do I need a home insurance binder?
Lenders often request proof of homeowners insurance before they will approve a mortgage loan. The lender will typically provide a list of documents they require for the underwriting process and the timeline you need to provide them, which is determined by your closing date.
It may take some time to receive your policy documents after you purchase a home insurance policy, so a home insurance binder may provide the proof of coverage that your lender needs in order to approve your mortgage. A binder also enables you to file a claim should there be a covered incident that occurs before you receive your policy documents.
However, not all companies issue home insurance binders. Insurance providers that use advanced technology such as artificial intelligence tools to underwrite policies can typically issue homeowners policy documents online, usually within a few hours, and that same-day policy document delivery typically eliminates the need for an insurance binder.
What does a home insurance binder include?
An insurance binder serves as your proof of home insurance coverage, so it must contain detailed information. This typically includes:
- Property address
- Policyholder’s name
- Insurer details, including the name of the insurance company and insurance agent
- Types of protections, like dwelling, personal property, loss of use, personal liability and medical payments coverages
- Coverage limits
- Policy deductibles
- Covered perils, such as fire, hail and wind
- Effective dates, including when the coverage begins and ends
How to get a home insurance binder
If your insurance company does not automatically issue a home insurance binder, you can typically request one using the following steps:
- Review the documents you receive after completing your homeowners insurance application.
- If the binder is not included, contact the insurance agent or company to request a binder.
- You should be able to receive the binder immediately via email or fax, or by downloading it from your online account. It might also be mailed to you or the lender. You may be able to obtain a copy of the binder from your agent.
- At your request, the binder can also be electronically transferred to the mortgage lender or other interest requesting the binder.
Since the binder is temporary, you may need to provide a copy of the policy declarations page or other finalized documents once the policy is issued. You can download the policy documents online or request them the same way you requested the homeowners insurance binder.
Frequently asked questions
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You can usually get a home insurance binder immediately after requesting it. You may be able to receive it via email, fax or download it in your online account. If you do not need the homeowners insurance binder immediately, you can request it be mailed to you.
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One of the most common reasons to need a home insurance binder is to provide proof of insurance to your lender as part of the underwriting process for a new mortgage or refinance. The homeowners insurance policy has to also go through an underwriting process, which can take days or weeks to complete. The binder serves as temporary proof of insurance coverage to satisfy lender requirements so you can close on your house without delaying the process while the insurance company completes its underwriting process.
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Yes, a home insurance binder can be canceled by your insurer if your coverage application ends up being denied. A home insurance binder is a temporary agreement between you and an insurance provider that provides coverage until a formal insurance policy is issued. Since it’s a temporary arrangement, it can usually be canceled by either party. However, the specific terms and conditions regarding cancellation, including any potential fees or penalties, will be detailed in the binder agreement. It’s important to review these terms carefully and communicate with your insurance provider to ensure you don’t end up with a lapse of coverage.
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