What is a home insurance binder?
When you get a mortgage for a house, the lender will usually require you to have homeowners insurance for the duration of the loan. This is done to protect the lender in the event that the home suffers covered losses. Some lenders will even require proof of home insurance as part of the underwriting requirements before approving a loan. But what if your lender requires homeowners insurance and you haven't received your policy documents in time for your home's closing?
These circumstances are not unusual, especially given all of the moving parts involved in purchasing a home. The good news is that there is a solution. In these cases, homebuyers can ask their insurance company for a home insurance binder. A binder proves that you have the necessary coverage options and are waiting for your policy. Home insurance binders protect the subject property and allow you to proceed with the mortgage process.
Why do I need a home insurance binder?
Before approving a mortgage loan, lenders frequently require proof of homeowners insurance. After purchasing a home insurance policy, it may take some time to receive your policy documents, so a home insurance binder can provide the proof of coverage that your lender requires in order to approve your mortgage. A binder also allows you to file a claim if a covered incident occurs before you receive your policy.
However, not all companies provide home insurance binders. Insurance companies that use cutting-edge technology can typically issue homeowners policy documents online, usually within a few hours, and that same-day policy document delivery typically eliminates the need for an insurance binder.
What does a home insurance binder include?
Because an insurance binder serves as proof of home insurance coverage, it must include detailed information such as:
- Property address
- Policyholder’s name
- Insurer details, including the name of the insurance company and insurance agent
- Types of protections, like dwelling, personal property, loss of use, personal liability and medical payments coverages
- Coverage limits
- Policy deductibles
- Covered perils, such as fire, hail and wind
- Effective dates, including when the coverage begins and ends
How to get a home insurance binder
You can request a home insurance binder if your insurance company does not automatically provide one. Along with the binder, the insurer will usually provide proof that you have paid your premium. You can usually move forward with the mortgage loan process by submitting the binder and proof of payment to your mortgage lender.
A home insurance binder may have a time limit for validity, depending on your state's insurance laws. In Texas, for example, a home insurance binder is only valid for 30 days, according to state law. As a result, if a Texas home buyer receives a home insurance binder dated September 1, they must purchase an insurance policy by September 30.