What characterizes a binder in insurance?

A binder in insurance is characterized as a temporary insurance agreement. It serves as an interim coverage that provides protection while the insurance application is being processed and before the official policy documentation is issued. This means that while the application is under review, the insured receives coverage and the binder ensures that there is a legal obligation for coverage to exist during this period.

Moreover, the nature of a binder allows for quick coverage, making it advantageous for situations that require immediate protection. It does not guarantee that a policy will ultimately be issued, as the insurer may find reasons during the underwriting process to deny the application. Additionally, because it is a temporary measure, it is not considered a long-term solution like a formal insurance policy, and it can typically be canceled by the insurance company if necessary.