What is a Binder in insurance?

A binder in insurance serves as a temporary agreement that provides coverage before the issuance of a formal insurance policy. It acts as an assurance to the insured that they have coverage in place for a specified period while the final details of the policy are being finalized. This period allows the insurance company time to process the application or complete any necessary underwriting, without leaving the insured without protection during this interim phase. Binders are typically issued by agents and can include essential coverage details, limits, and conditions that will be followed up on in the formal policy.

In contrast to the correct answer, a final signed insurance policy represents the completed terms of an agreement between the insurer and the insured, while a formal rejection of an insurance application indicates that the application did not meet the insurer's underwriting standards. A certificate of insurance, meanwhile, serves as proof that insurance coverage is in effect but does not provide any temporary coverage itself.