Legal Definitions - binding slip

A binding slip, often simply called a binder, is a temporary written agreement that provides immediate insurance coverage until a formal insurance policy can be issued. It serves as proof that an insurance contract is in effect, even though the full policy document has not yet been prepared or delivered. This temporary coverage is legally binding on the insurance company, meaning they are obligated to pay claims that arise during the binder's effective period, subject to the terms agreed upon.

• Example 1 (Auto Insurance): Imagine David is at a car dealership, excited to drive his new vehicle home. The dealership requires proof of insurance before he can leave the lot. David's insurance agent quickly issues a binding slip, confirming that his new car is immediately covered under his existing auto policy, or a new one, even though the official policy documents won't arrive for a few days. This binding slip allows him to legally drive his new car off the lot with immediate coverage, knowing he is protected.

• Example 2 (Homeowner's Insurance for a New Purchase): Sarah is closing on her new house next week. Her mortgage lender requires her to have homeowner's insurance in place by the closing date. Sarah applies for a policy, and her insurance company provides a binding slip. This document confirms that her new home is insured against perils like fire or theft starting from the closing date, even though the comprehensive policy booklet will be mailed to her later. Should a covered event occur before she receives the full policy, the binding slip guarantees coverage.

• Example 3 (Commercial Liability Insurance for a Project): A small event planning company, "Celebration Creations," secures a contract to organize a large outdoor festival. The venue requires them to have general liability insurance in place immediately to cover potential accidents during setup and the event itself. Their insurance broker arranges for a binding slip from an insurer. This slip confirms that Celebration Creations has the necessary liability coverage in place for the festival, effective immediately, allowing them to begin preparations without delay while the formal policy documents are being prepared and processed. If an incident occurs during this interim period, the binding slip ensures the company is protected.