Last updated: May 24th, 2022
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The auto insurance binder is a common resource that drivers get from car insurance providers. It may not be as common as it once was, but the binder is a short-term way to provide essential insurance information to lenders, the DMV, and law enforcement while the policy goes through underwriting or other internal processes at the insurer.
The binder will have basic information like the driver’s name, address, company name, coverages, premiums, vehicle VIN, policy number, and the policy application date.
What can serve as an auto insurance binder?
Auto insurance binders are part of a new policy so that you wouldn’t pay for them separately. The cost of the binder is under the cost of the policy.
There are several situations where drivers might need this kind of temporary proof of insurance.
The first one is during the sale of a new vehicle. The new auto sale paperwork has been completed, except for the insurance policy, and when the driver is set to bring the new vehicle home, the insurance policy isn’t ready. The binder can serve as temporary proof of insurance.
Another scenario where an auto insurance binder might be necessary is when there’s a delay with underwriting or some other process, and the policy won’t be ready for days. The driver may have to get to work or other destinations in the meantime.
The underwriting process ensures that the policy aligns with the insurance provider’s risk. Underwriters might change some aspects of the policy during that process, but while working, the driver can use the auto insurance binder to get legally on the road with their vehicle.
If a policy is not ready and an auto insurance binder is not available, look at all other options for direct coverage. Drivers who are part of a family plan may get covered.
However, it’s essential to know that if you can’t get any coverage and a binder is unavailable, you are uninsured and not legal to drive.
A few common steps will help a driver assess if they need an auto insurance binder or not.
First, ask company reps when the policy itself will be ready. Many insurance policies are almost instantaneous now, so the customers don’t need the auto insurance binder.
Second, if it’s going to be a significant time before the policy is ready, think about where you have to go. Are you going to need to be on the road?
The third step is to look for coverage alternatives. Some companies, for example, may offer a short-term policy to fill the gap.
Insurers should be able to provide you with a way to legally take your new vehicle home and spend your first few days on the road if the policy needs work.
The traditional way to show proof of insurance was with physical paper documents. Some drivers also use a screenshot to send information to interested parties or even at a traffic stop.
Here, the key is to check with your state of residence. Different states have their own rules about digital proof of insurance, and while most law enforcement officers will accept digital proof, the rules vary.
Binders typically last for 30 days and vary by state law. Make sure that your policy will be in place by your binder expires.
If the auto insurance binder expires and you don’t have new policy proof, you are driving without proof of insurance. If you do not have a formal policy at the binder expiration, you are driving illegally without insurance.
In many ways, the binder is the same as proof of insurance. For instance, it should be just as useful to provide to a mechanic shop doing an inspection or a traffic patrol cop. The way it is different is that the binder is, by its nature, short-term coverage and not a formal long-term policy.
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Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
