Why You Need A Home Insurance Binder?

If you’re buying a home with a mortgage, chances are, you’ll need a home insurance binder. Issued by your insurance provider, a home insurance binder acts as proof that you have home insurance and that your policy covers what your lender needs it to cover.

Pretty simple, right?

It is. But it’s also important to note that a homeowners insurance binder is not the same thing as homeowners insurance, and just because you have the binder does not mean your insurance is in place and in effect.

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What is a Homeowners Insurance Binder?

As mentioned, a homeowners insurance binder is a document provided by your insurance provider for the purposes of showing your lender what your home insurance policy will cover. “Will” is the operative word here though: technically, your homeowners insurance isn’t active yet.

A binder serves as temporary proof of insurance, since your homeowners policy has to go through underwriting before it is issued—and this usually won’t happen before you need your loan.

The good news is that a home insurance provider is proof that your policy will be issued, so unless something unexpected happens during underwriting, you don’t have to worry about being denied.

Bear in mind, however, that because a home insurance binder is a temporary document, you’ll want to pass it along to your lender shortly after it’s issued. Home insurance binders are typically only valid for 30 to 60 days.

What's Included in a Home Insurance Binder?

The home insurance binder shows your lender the important information about your policy that’s needed to secure a loan. This information includes:

The type of policy. The type of insurance refers to what types of plans you have in your policy. For example, property, liability, flood insurance, etc.
Your insurance coverage amount. Your homeowners insurance binder will include the amount for which you are covered, which should be for equal to or more than the cost to replace the house.
How long the policy is for (i.e. the time limits on the policy before it expires.)
Info about the insurance company. These details will include contact information for the insurance company, a policy number and customer ID.
Perils you’re insured against under the policy. The perils relate to the type of insurance but go into more detail as to what, exactly, is covered in terms of perils (e.g. fire, wind, hail, vandalism, theft).
The type of property you’re insuring. From a personal home to commercial property to a car, truck or RV, this part of the binder will let your lender know what you are insuring.
The person or people named as the insured and loss payee. This will be the person who took out the policy and the person or people to whom payment will be made in the event of a successful claim.
Deductibles. Binders will also make mention of deductible—the amount the policyholder has to pay before insurance kicks in to cover.

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When a Homeowners Insurance Binder is Necessary?

Anytime you get a new insurance policy, you should request a binder. Even if you’re not getting a new mortgage, your existing lender will likely want updated information on your insurance policy.

Check with your existing mortgage provider to be sure.

Home Insurance Binder vs. Declarations Page: What's the Difference?

While a declaration page provides all the same information as a home insurance binder, a declaration page is issued by your home insurance provider after the underwriting is finalized. It acts more like a summary.

In contrast, your home insurance binder is an official document, like a temporary driver’s license, that allows you to do something (i.e. get your mortgage) before your home insurance policy is actually issued.

A Final Note: Insurance Binders Aren’t Only For Homes

Anytime you take out a loan to purchase any piece of property (e.g. commercial space) or a vehicle, you may be asked to provide an insurance binder. Again, these binders—no matter what they are providing evidence of insurance for—will be issued as temporary proof that you will have valid insurance. Yes, they’re an extra step toward securing your loan, but they serve to give your lender the piece of mind they need to know their investment is covered.

Jessica Fox Jessica Fox has been a freelance writer for five years, with a specialty in health, wellness, and insurance. During this time, she’s written for some of the biggest B2B and B2C brands from around the world. Jessica is also the mother of two young daughters and loves coffee, writing, and working out.