What is the main purpose of a binder in insurance?

The primary purpose of a binder in insurance is to provide temporary coverage. A binder serves as a temporary arrangement that ensures the insured has coverage in place while the underwriting process is completed and before the formal policy is issued. It acts as a guarantee of coverage, allowing the insured to have protection from the moment they agree to the terms, even though the policy document itself may still be forthcoming. This is especially important in situations where immediate coverage is necessary, such as when purchasing a new home or vehicle.

While finalizing policy details, explaining policy exclusions, and setting terms are important aspects of the insurance process, they occur after the binder has been provided. The binder is specifically designed to secure coverage in an interim period, ensuring the policyholder is protected without any lapse in coverage.