When you have business insurance policies you will often hear the terms “insurance binder” and “certificate of insurance,” but do you know the difference?
A binder is a contract of insurance. It's called a binder because it "binds" your coverage and creates an insurance contract and is used temporarily until the policy is issued.
A certificate of insurance is a form of proof of insurance warranting that you have coverage for a specific period.
An insurance binder is a brief document that serves as a temporary insurance policy. It remains in effect for a short time, typically 30 to 90 days. A binder dissolves once the policy is issued.
Binders will often be required by lenders when a business takes out a loan. For example, if you are taking out a loan to buy a new building, the lender will often require you to insure the building against physical damage under a commercial property policy and will want to see the binder as proof of that coverage.
A binder may be issued by an insurance company or by an insurance agent on the insurer's behalf. An agent can issue a binder only if they have been afforded binding authority (the authority to initiate coverage) by the insurer.
Insurance brokers don't have binding authority because they don't serve as representatives of insurers. A broker may issue a binder, but the document will not be valid until it is signed by an underwriter or other authorized representative of the insurer.
A binder provides general information about your company, your insurer and your agent. This includes:
A binder is typically divided into sections, each applicable to a specific type of coverage, such as general liability or workers' compensation. For each coverage you have purchased, the binder should list the limits provided, the coverage forms that will be included, and key endorsements that will be attached to your policy.
Certificate of insurance
A certificate of insurance is a single-page document that lists active, in-force insurance policies for a business.
Certificates of insurance are often requested when one business engages the services of another and wants proof that the other business has secured the necessary coverage.
A standard certificate will list all of your coverages, and the name of the insurance company and policy effective date and expiration.
A certificate of insurance contains separate sections for different types of liability coverage listed, such as general, auto, umbrella, and workers' compensation.
"Insured" refers to the policyholder, namely the person or company who appears on the certificate as being covered by the insurance.
In addition to coverage levels, the certificate includes:
Having a certificate of insurance shows potential clients or business partners that your organization is insured. That means that in the event of an unforeseen scenario like an injury or property damage, there is minimal risk of out-of-pocket payouts or unpleasant and expensive litigation, for you or your customer.