During the process of buying a new home, you’ve likely been introduced to a variety of new confusing terms and documents. When it’s time to apply for a mortgage loan, you’ll probably need to have a homeowners’ insurance binder. If you’ve never heard of this document, you’re not alone. Here’s everything you need to know about getting a homeowners’ insurance binder to be prepared for your mortgage application.
What is a Homeowners Insurance Binder?
A homeowners’ insurance binder is a document between you and your insurance agent that proves you have purchased homeowners’ insurance. When you buy a home, your lender will require proof of insurance. An insurance agent will write the details of your policy in an insurance binder to serve as a temporary insurance policy until the official policy is finalized. Your homeowner’s insurance binder is valid until you receive your official contract.
Your insurance binder contains important policy details like coverage limits and deductible amounts. This temporary document outlines the details of your insurance plan and should be provided automatically by your insurance agent. While some details vary, this homeowners’ insurance binder sample can give you an idea of what a typical insurance binder looks like.
Who Needs a Homeowners Insurance Binder?
When you purchase a new insurance policy for your home, it can take a few days to process paperwork and underwrite the policy. Your insurance binder provides temporary proof of insurance until the official policy is complete. A homebuyer who needs immediate proof of insurance needs an insurance binder. A homeowner’s insurance policy may also be required in the event you’re refinancing an existing home loan.
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Since your insurance binder confirms the coverage you’ve obtained for your home, it’s important to examine the document and ensure all the details are correct. These details are an important part of your mortgage application and will be vital if, for any reason, you need to make a claim. Correcting any inaccuracies will prevent errors in the policy.
Insurance Binder vs Insurance Policy
Although you can request an insurance binder when you purchase your new homeowners’ insurance policy, the two documents aren’t the same thing. A homeowner’s insurance policy is a document that provides temporary proof that you’ve purchased homeowner’s insurance. It contains some important information that will be included in your policy. Your homeowner’s insurance policy is a document that describes the complete terms of your homeowner’s insurance.
When Do You Need a Homeowners Insurance Binder?
Since an insurance binder provides proof of insurance before receiving your policy, you need one any time you wait for a new policy to be underwritten. You need a homeowner’s insurance binder in these situations.
When You Purchase a New Property
If you’re in the process of purchasing a new home, your mortgage lender will require you to have proof of homeowner’s insurance. During the closing process of buying your new home, you’ll need to purchase an insurance policy. Since it can take several weeks for your policy to be underwritten, your insurance binder serves as proof of insurance to allow you to close on the loan.
When You Finance Your Property
Whether you’re financing a new home or refinancing your home for a better mortgage, you’ll need proof of insurance to obtain a loan. When the details of your insurance policy are unavailable when the loan is issued, getting a homeowner’s insurance binder from your insurance agent will provide the proof you need.
When You Purchase a New Homeowner’s Insurance Policy
If you’re purchasing homeowner’s insurance for the first time or investing in a new homeowner’s insurance policy, you’ll need an insurance binder that includes the details of the new policy. Purchasing a new policy during the home-buying process is common. However, you may decide to buy a new home insurance policy when you switch insurance companies or upgrade your existing policy.
Information Included in Your Insurance Binder
Your insurance binder will include all of the information your mortgage lender needs to understand your insurance coverage. When you receive the document, please read it thoroughly to ensure it contains the following details.
Risk
In an insurance policy, the risk describes what is insured. In a homeowners’ insurance policy, the risk is the property and the dwelling. Information in your binder will include the address, the amount of insurance on the dwelling (or value of the property), and any possessions covered in the policy. Additional information about the type of home and details about the property may be included.
Identity of Insured
The property owner, also called the policyholder or the named insured, should be clearly listed on the document. If the property is in multiple names, additional owners, such as your spouse, are also listed. The binder will also list the lienholder or mortgage lender.
Liability Amount
The insurance binder will list the amount of liability coverage on those identified as insured on the policy.
Deductibles
Each section of insurance on the home will have a deductible that must be met. Each section will be listed with the type, amount of coverage, and deductible amount. If the policy contains any insurance endorsements, they will also be listed.
Insurance Agency and Type of Coverage
The name of the insurance company providing coverage is listed in the document. Since many levels of coverage are available for homes, the insurance type must be listed to avoid errors.
Effective Dates
The insurance term describes the time between when the policy was purchased and when it became ineffective. Since an insurance binder is temporary, the ineffective date occurs when the official policy becomes active (usually within 30 days). It’s important that you receive your official policy documents before the date your binder expires to avoid a lapse in coverage.
Identity of Insurance Agent
The name of the insurance agent who authorized the binder will be listed on the document. There may also be a disclaimer stating that the binder is subject to the terms and conditions in the official policy.
Terms of Insurance
The purpose of a homeowners’ insurance binder is to provide temporary insurance coverage until the policy is underwritten. Therefore, the terms of your policy, or an outline that explains your coverage details, is the main information supplied by your binder. The terms in your finalized policy will likely be the same as what’s in the binder. However, minor changes sometimes occur, like changes in your rates.
A homeowners’ insurance binder is one of many important documents you need during the process of buying or refinancing a home. This document is easy to get from your insurance provider and is a great way to learn about the homeowners’ insurance you need to protect your home.
At LoPriore Insurance, we understand the importance of promptly gathering the documents to complete your home purchase. An experienced insurance agent can help you determine your coverage needs and provide you with an insurance binder with the details of your new policy. The LoPriore motto is we make insurance easy for you. We are a one-stop shop for all of the various types of insurance to fit your changing lifestyle. Our independent insurance agents act as advisors to help our valued customers find the insurance coverage they need at the best prices available. Get in touch today to learn more about the policies we provide, get an instant quote, or get the homeowners’ insurance binder you need to complete the purchase of your new home.
Homeowners Insurance Binder Frequently Asked Questions
How do I get a home insurance binder?
When you purchase a new homeowner’s insurance policy, it’s important to ask your insurance agent for the corresponding binder. Whether you’re in the process of purchasing a new home or obtaining a new policy to protect your home better, your insurance binder will provide proof of insurance until the policy is complete.
Why do I need an insurance binder to close on a property?
When you’re financing a home, your lender needs to protect their investment. Therefore, you’re required to purchase homeowner’s insurance in the amount that will cover the loan if the home is destroyed. Your lender cannot start the loan process without an insurance binder.
How long should I use an insurance binder?
Your home insurance binder provides proof of insurance until the policy is underwritten. The binder is only valid for 60 to 90 days. If you haven’t received your policy when it nears time for the binder to expire, it’s important to contact your insurance agent to learn why. You no longer need your insurance binder when you receive the complete policy.
Can I use my home insurance binder if I need to file a claim?
Yes, your binder provides proof regarding the terms of your insurance policy. While it’s often only needed to provide proof for the loan process, it can also provide the information you need to determine if you can file a claim for various damages that may occur before you receive your policy.
During what part of the home purchase process should I get a home insurance binder?
When you sign the purchase agreement, it’s time to talk to your insurance agent about getting a home insurance policy and the corresponding binder. The sales agreement typically takes place around 45 days before closing day. While a binder can usually be obtained quickly, beginning the process early is best to avoid any unforeseen delays.
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