When a Car Insurance Binder Policy is Necessary and Why
Basically, a car insurance policy protects you against any financial losses you might suffer should you be involved in an automobile accident. Depending on who is found to be at fault, wither your insurance company or the other party’s insurance company will have to pay for any damages or injuries sustained. When you go into an insurance agency for a quote, they will ask you many questions relating to your driving and insurance history. You will have to divulge if you have had any tickets, suspensions, accidents, or claims in the past. As well, you need to let them know how long you have been licensed and insured.
Some car insurance companies will offer to write you a binder policy. To put it simply, a binder policy is a temporary ‘binding’ agreement that provides you with valid auto insurance immediately. This agreement can be in either written or oral form and is valid for a specified amount of time, which could be 7 or 10 days, or even longer. The car insurance binder policy can then be switched to a permanent policy once the premium has been paid. This type of car insurance policy is legal and if stopped by a law enforcement officer, it will serve as a valid insurance policy, even though it shows that it is, in effect, only for a certain amount of time.
There are several reasons why an insurance company will issue a binder policy. The insurance company needs a certain amount of time to properly underwrite a policy. This means that they must assess the risk that they are taking on. They will check out the accuracy of the applicant’s information and determine if it is a risk they are willing to take on. They will carefully review the applicant’s driving record, taking into account any tickets, suspensions, and at-fault accidents that may be on their record. If the risk is too high, they may charge a higher premium or decline the policy altogether.
When a consumer goes to buy insurance, they usually require the coverage immediately; they cannot wait 7 or 10 days. Proof of insurance is required if a vehicle is being financed or leased. The finance company and auto dealership will refuse to release funds or allow the vehicle to be driven off the lot without this confirmation. You also cannot register a vehicle without proof of insurance. After the premium has been paid, a permanent insurance policy will be mailed out to the client.
If your insurance company offers to write you a car insurance binder policy, make sure you are aware of what your coverage entails, when they require the premium to be paid, and how long the binder is in effect for.