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Car Insurance Binders
When you apply for car insurance and get a quote, you won’t immediately get your policy. Certain details need to be worked out before an insurer can issue you a policy. This process is referred to as underwriting, and includes a review of your eligibility for auto insurance and your risk level.
However, this doesn’t mean you have to wait to drive. During the underwriting process, you’ll be issued an insurance binder to give you temporary coverage while you wait.
What Is a Car Insurance Binder?
At its simplest definition, a car insurance binder is temporary car insurance. A binder will act as your insurance until the underwriting process is through and your car insurance company issues you your actual policy.
The time it takes to finish underwriting policies varies, but generally it should take around 10 days.
The underwriting process is very important in the insurance world. It is essentially how your car insurance rates are determined.
During this process underwriters from your insurance company will verify the information you provided in your application. These car insurance underwriters use this information to:
- Decide whether to insure you.
- Set your premium.
The underwriting process includes review of rating factors (or factors that determine cost of your car insurance policy) that typically include, at a minimum:
- Your driving record and the driving records of any other drivers you want on your policy.
- Your car’s:
- Your auto insurance history, including at-fault accidents.
- The location at which you park your car overnight.
- The average miles you drive per day.
With the above rating factors, underwriters can assess your risk as a driver to help determine whether it makes sense to provide you with insurance and how much it might cost to offset that risk. That’s where your premium comes in.
An insurance company cannot cover your risk completely; otherwise, it would have no money to pay out claims. To ensure the business can pay claims when due, they share the risk with you, the customer. This share comes in the form of your premium and deductibles.
It’s clear to see why the underwriting process is so important. The agent needs a certain period of time to make sure you get a fair review and the right rates. During this period of time, an insurance binder is absolutely essential. Without one, you’d be driving uninsured.
Binder vs. Policy
The biggest difference between a car insurance binder and an actual policy is that the binder is temporary. Remember, the binder’s time span for coverage is quite short and is only meant to provide you with coverage during underwriting.
Your car insurance policy is what you are actually buying from your insurance provider.
During underwriting, your insurance company may change some of the parameters of your policy that were provided in your original quote. Usually, this variation is a change in the quoted rate.
If, for instance, the underwriter finds that you have had more traffic violations than you stated in your application, you will likely see a rate increase, as you will be placed in a higher risk group.
Note that there is always a slight possibility of the insurer deciding to reject coverage after review, e.g., if it becomes clear you lied on your application or you are simply seen as too high-risk to cover.
Getting a Binder
The process of getting your binder may differ based on your method of purchase.
Online Car Insurance Purchases
If you purchase car insurance online, you may find that your provider instantly offers you the option to print out a proof of insurance while informing you that this proof of insurance is temporary.
This is your binder.
Typically, your auto insurance company will also inform you that they will be sending you your finalized policy and proof of insurance shortly.
If you purchase your car insurance with an agent, you may be given a verbal binder. It is recommended that you ask for a written binder, as your binder can be used as your proof of insurance. Most states require you to carry a proof of insurance with you as you drive.
Binders are very important in the car insurance world. They can keep you from having a lapse in coverage and violating your state laws.