What is an 'insurance binder'?

An insurance binder is a temporary contract of insurance that provides coverage immediately, before the formal policy is issued and delivered. Binders are common in property and casualty insurance when coverage must take effect right away — for example, at closing on a home purchase, the lender requires proof of insurance before the loan funds. Binders are typically valid for a limited period (often 30-90 days) and contain the essential terms: parties, coverage amounts, premium, policy type. They can be oral or written, though written is universal in modern practice. Once the formal policy is issued, it replaces the binder. Binders can be revoked by the insurer with notice if underwriting concerns arise. Producers should not issue binders for risks they are not authorized to bind or for amounts above their binding authority.