When the need for insurance coverage is immediate, the agent with authority from the insurance company may fill out a document obligating the company to provide prompt coverage. This document, which is called a “binder,” may be tendered before the policyholder has even paid any part of the premium, and it will remain in effect until the actual policy is issued. The important point to remember is that once a binder has been issued and accepted, a contract exists between the policyholder and the insurance company that the agent represents. This sort of arrangement is most likely to occur with property and casualty agents, who often have the power to bind the insurance company.
NOTE: One circumstance that prompts the need for an insurance binder is the fact that a homeowners insurance policy for a property must be in force at the time of closing.