When you apply for auto insurance and get a quote, you will not immediately get your policy. Before an insurer can issue you a policy, certain details need to be worked out. The process of insurance approval is known as underwriting, and it includes a comprehensive review of your eligibility for auto insurance and your level of risk. During the process, you will be issued a car insurance binder to give you temporary insurance coverage while you wait.
Why Are Car Insurance Binders Issued?
Simply put, a car insurance binder is temporary car insurance. A binder will temporarily act as your insurance until the underwriting process is completed and your auto insurance company provides you with an actual policy. The time required to underwrite a policy varies, but the process rarely takes more than ten days.
How Insurance Companies Determine Premiums
The underwriting process is vital to the insurance industry. The process is the primary method by which car insurance rates are established. Insurance underwriters verify the information supplied by applicants. This data includes information regarding driving and insurance history, car make and model, current driving habits and even where the car will be parked overnight.
By assimilating this information, underwriters can calculate your risk as a driver. This knowledge will help determine whether extending coverage would be prudent and, if so, how much the company would have to charge in premiums to offset that risk. An insurance company cannot completely cover your risk; otherwise, it would have no means to pay out claims. To guarantee the business can pay claims when due, they share the risk with you, the purchaser. This portion comes in the form of your premium and deductibles.
As you can see, the underwriting process is detailed and can be time-consuming. For the duration of the process, an insurance company issues a binder to provide coverage for the applicant. During this period, an insurance binder is crucial. Without one, you’d be driving uninsured.
Binders and Policies - What's the Difference?
The biggest difference between a car insurance binder and an actual policy is that the binder is temporary. Keep in mind, the binder’s time span for coverage is quite limited and is only meant to provide you with coverage during underwriting. Your car insurance policy is what you are actually buying from your insurance provider.
During underwriting, your insurance company may alter some of the policy parameters provided in your original quote. Normally, this difference is a change in the quoted rate.
For example, if underwriting discovers a difference between your driving record and application your change into a higher risk bracket will result in a rate increase. If the discrepancy is significant, there is the possibility of the insurer deciding to reject coverage after review if it determined that you are too high of a risk to cover. It is always important to be as forthcoming on your application as possible.
Acquiring a Binder on the Way to Your Policy
Based on your method of purchase, the process of getting your binder may differ.
If you purchase insurance from an online provider, the provider may offer the opportunity to print out a proof of insurance document immediately. This is your binder, and the provider will explain to you that it only provides temporary coverage until your finalized policy and proof of insurance are available.
If you purchase insurance directly from an agency, they may offer a verbal binder. It is preferable that you receive a written binder, as the document can be used to communicate that you are insured. In most states, proof of insurance must be carried with you as you drive so be sure to insist on a written binder.