What Is a Homeowners Insurance Binder?

When you’re planning to buy your dream home and need to take out a mortgage, you'll need a homeowners insurance binder to close on your home. Most lenders require that you carry homeowners insurance throughout the loan's lifetime to protect the lender's funds. If a natural disaster or other issues destroy the home, homeowners insurance will protect you and the lender. 

For that reason, some lenders require proof of home insurance during the underwriting process to approve the loan. If the lender requires homeowners insurance, but you haven't received your policy documents, you can get a homeowners insurance binder. Read on to understand what's included in a homeowners insurance binder and how to get one from your insurance company.

Understanding Homeowner Insurance Binders

A homeowners insurance binder is temporary proof of homeowners insurance that you receive before the finalized contract. Insurers issue an insurance binder to prove you’ve purchased insurance coverage. A homeowners insurance binder gives you full coverage until you receive a formal issuance of the insurance.

The homeowners' insurance binder contains all of the policy details, including policy information, property details, perils insured, policy effective dates and more. This binder acts as your proof of insurance for your lender's mortgage approval.

In contrast to an insurance declaration page, which is issued with the final insurance contract and summarizes the coverage you'll receive, a binder is temporary. Usually, when the insurance declaration page is available, your binder expires because it's no longer needed as proof of insurance coverage.

Who Needs a Homeowners Insurance Binder?

You will need a homeowners insurance binder if you get a mortgage to purchase a house. While there are other cases where you might need to provide proof of insurance, insurance binders are most commonly used by mortgage lenders when buying a property. Binders often include information about coverage and policy limits required for the underwriting process. 

What Is Included in a Homeowners Insurance Binder?

A homeowners insurance binder will include key information required to confirm the insurance for loan underwriting, including the address of the property and property type, a description of your home, the insurance company's name, type of coverage and policy start and end dates. Here's what to look for in an insurance binder. 

Policyholder Information

First, the policy includes the named insured and loss payee. This is essential to prove who holds the insurance. The named insured is the policyholder, usually an individual or a couple. 

The loss payee is listed on the insurance policy as having the right to any claims filed to protect their financial interest. The lender will typically be the loss payee if you have a mortgage. This ensures that the lender will recover the remaining mortgage costs if the home is lost because of a situation covered by the policy, such as flooding or other natural disasters. 

Type of Insurance Policy

Most insurers offer different types of insurance policies. This section will specifically mention the type of insurance you have for your home. In addition to dwelling coverage, this can include general liability coverage, other structures coverage, personal property insurance, medical coverage or loss of use coverage. 

Property Details and Description

The property details and description include information on the address of the property. It will detail whether it's a single-family home, multifamily home, apartment or other type of dwelling. The property description will include information on the number of bedrooms and bathrooms. This is essential to ensure that the property is fully insured.

Perils Insured Against

Perils list specific causes of damage that are covered. You want the insurance binder to include as much information as possible about the perils covered. Without adequate coverage, the insurance may not cover damage to your property. Most homeowners get an HO-3 or special form policy covering both open perils and named perils. 

Information about the perils covered can make it easier for you and the underwriter to review the coverage quickly and finalize the closing. 

Coverage Limits and Deductibles

Coverage limits may reduce your monthly premiums but limit how much the insurance company has to pay out. This is essential information to include in the binder. For the mortgage lender to finalize the loan, your homeowners' insurance binder must show set minimum policy limits to ensure adequate insurance coverage on the home. 

The binder should also include information on the deductible amount and any additional limits or additional special coverage. The deductible is the amount of money you must pay on any claim before the insurance company will step in with coverage. 

The policy limit is set for each part of the policy. You will have a stated coverage limit for the dwelling, personal property, personal liability and any other insurance types included in your policy. 

Policy Effective Dates

The policy effective date and expiration date are the start and end dates of coverage that lenders will use to confirm adequate coverage. 

Specific Endorsements or Additional Coverage

In case there are any special coverages, such as additional covered items, added to the policy, they also will be listed on the homeowners insurance binder. Additional coverage may include additional buildings or parts of the property. 

Terms and Conditions of the Policy

Policy terms and conditions include details about your policy, including the amount and type of coverage, effective date, names of insured party or parties and limits or deductibles.

Insurance Company Contact Information

Finally, the homeowners insurance binder will include the insurance company's contact information and the name of the insurance agent who is your point of contact. It will also include a mailing address and contact information. 

How to Get a Homeowners Insurance Binder

To get a homeowners insurance binder, you must apply for property insurance and finalize coverage. After paying the first monthly premium, the insurance company will issue a homeowners insurance binder as temporary proof of coverage needed to finalize the underwriting process and the loan. 

In some cases, especially if you already know how much insurance is required, you may be able to finalize the policy and bring an approved policy, not a binder, to the table. You can contact the insurance company to get a copy of your insurance binder or existing policy. 

How Long Does a Homeowner Insurance Binder Last?

How long a homeowners insurance binder lasts depends on the issuer, but is usually 30 to 90 days before the insurance is finalized. Before the binder expires, you must finalize the insurance and get a homeowners policy or insurance declaration page. 

What Happens if There is a Claim During the Binder Period?

You can work with the insurance company if there is a claim during the binder period. However, if the property sale is incomplete, the previous homeowner or their insurance would be responsible for the property. 

Securing Homeowners Insurance

Getting a homeowners insurance binder can be a key step to finalizing the purchase of your home. You can work with the insurance company directly to ensure adequate coverage and provide the binder for the lender's approval. Need other mortgage options? Find the best bank-statement-only mortgage lender, best conventional mortgage lenders or refinance company here.

Frequently Asked Questions