Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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UPDATED: Sep 15, 2021

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Just as any other industry, insurance has a unique language. Furthermore, the language of insurance changes from coast to coast in the United States and is even more different in Europe and Asia.

In some areas, a cover note is referred to as a ‘binder’. Both mean that insurance coverage as quoted is in force to protect your vehicles and drivers.

In the United States, a binder is a temporary certificate indicating that your car is covered by insurance until such a time as a policy is issued. During this time, an insurance company may still be checking certain things on the application before they issue a full certificate of insurance. In Europe and Asia, this temporary certificate is referred to as a cover letter.

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Why is a cover letter or binder important?

With digital communication, it is possible to issue an insurance policy as soon as the underwriting is approved; which can also be within the same day.

In some instances, however, verification of underwriting information and other data can delay issuance of an actual policy. If certain data is not returned immediately, an insurance company cannot finalize an insurance rate. Whether you’re buying a condo or replacing old coverage in a pinch, you may need proof of insurance now. A cover letter or binder provides proof of insurance until the actual policy is issued.

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What information is required on a cover letter or binder?

The below details are needed on a cover letter:

  • Inception, beginning, date and time of the coverage
  • Insurance company providing the coverage
  • Named insured (you); address, and lien-holder’s name, address, and phone number
  • Term of the coverage – usually 60 days. A policy should be issued within two weeks to replace the cover letter or binder.
  • Information on your vehicles: Make, model, and registration number of the vehicles – year of manufacture
  • The following information may be included, also: Engine and chassis number as well as the cubic capacity of your vehicle, seating capacity
  • Declared value or statement of actual cash value of the vehicles and included accessories
  • Signature of the agent as well as their name, address, and telephone number

Why should you have a cover letter or binder?

There are practical reasons for issuing a cover letter or a binder until the issuance of a certificate of insurance.

  • Provides proof of insurance for the police, your lien-holder, and for you in the event of an accident.
  • Provides coverage if the vehicle is vandalized or stolen

Be cautious to keep track of the cover letter or binder since it is valid proof of insurance for at least sixty days. Once you take possession of a home, you become responsible for anything that may happen to it. You don’t want to be uninsured because you didn’t get a cover letter/binder.

Generally, you’ll get a more in-depth description of your level of coverage once your policy is finalized. You can file an insurance claim if something happens as long as a binder is fully activated and in place at the time of the related incident.

Where can you get insurance quotes before obtaining coverage?

To save money as well as to obtain the best coverage, obtain at least three quotes from different insurance companies. Whether you’re shopping for home, auto, or something else, there’s no single insurance company that offers the best coverage at the lowest price every time. Different insurance providers bring different things to the table, and buyers don’t always choose the cheapest option.

When you compare at least three policies side by side, you can clearly see who’s providing competitive pricing. Just make sure you’re comparing like policies. If one carrier is providing significantly lower limits or something else that’s different, you should always take note and adjust your expectations.

Ideally, you should begin the process of obtaining quotes at least two weeks before your current policy expires.

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What types of auto insurance are available?

The types of coverage you should consider are as follows, recognizing that each state has its own legal requirements.

Liability Insurance

This coverage provides protection for your legal liability in the event of an accident. Check with your state for exact limits required. In many states, the minimum is around $20-$30,000. But the following is generally suggested to offer full liability protection to shield you from lawsuits and other complications after an at-fault accident.

  • Bodily Injury Liability – $100,000 per person and $300,000 per accident to protect you if you are legally responsible for bodily injury to others in an accident.
  • Property Damage Liability – $50,000 per accident to protect you from legal responsibility for damage to others’ property

Physical Damage Coverage

Liability coverage does not protect you from damage to your own vehicle in an accident. Physical damage coverage provides protection for you, your cars, and your lien-holder. Types of coverage to be purchased are:

  • Comprehensive coverage – provides protection from animal damage, theft, vandalism, glass breakage, storms, and hail. Generally, this covers anything that’s not considered a collision.
  • Collision coverage – provides protection if your vehicle is involved in a collision with another car or object. Your current car insurance policy could have both these coverages or neither. Many only carry collision.

Deductibles

Insurance companies apply the deductible of your choice to physical damage coverage. The higher your deductible, the more you could save on insurance premiums. A higher deductible also means you have to pay more out of pocket after an accident. So if you can’t pay $1,000 after an accident, it doesn’t make sense to make that your deductible. Unfortunately, it could hold up your car repairs and cost you more in situations like that.

A $500 deductible is recommended, but a higher deductible may earn credits.

Other coverage that may be required by the state

These types of coverage sometimes are not required, but even so are desirable to purchase on your auto insurance:

  • $10,000 Medical Payments Coverage – to defray the costs of emergency medical procedures and transportation after an accident. Some health insurance companies may also exclude medical bills related to auto accidents. Personal injury protection, as it’s called, can help you cover some medical bills.
  • Uninsured Motorists Coverage – $100,000 per person and $300,000 per accident – to help pay for injuries to you and your family if involved in an accident with an uninsured motorist. This could be a hit and run driver, drunk driver, or many others who are uninsured or where it cannot be proven that they paid an insurance premium.

Examine the Status of Insurance Companies

Before purchasing insurance from any insurance company, you need to make certain that the companies are not only licensed in your state, but also financially secure and with few or any complaints with regard to claims. You can find this information from the following:

  • Your state’s insurance website – found under state government
  • National Association of Insurance Commissioners (NAIC) a national organization for information about insurance
  • A.M. Best – a national rating service for insurance companies
  • Standard and Poor’s – for information on ratings

Personal Information Needed by Insurance Companies for Quotes

When you request quotes from insurance companies, be prepared to give the following information:

  • Name, address, driver’s license number, and date of birth for each driver
  • Driving record for the last three to five years – each driver
  • Social security numbers for the main policy-holders – to verify credit information for rating purposes
  • Make, model, and VIN numbers for all owned autos
  • Usage of vehicles, miles driven per day, and yearly mileage
  • Desired coverage for each vehicle
  • Certificates for driver’s education classes, and/or defensive driving classes
  • Copies of school transcripts for students with a B or above Grade Point Average – school name and address should be included

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Evaluating Quotes

Assess information on premiums, coverage, and insurance companies to choose the best as well as the cheapest insurance company for your insurance.

Be certain that you read the quotations and estimates of cost carefully to be sure that you acquire the coverage needed.

Obtaining Cover Letters or Binders

Sometimes you cannot acquire insurance immediately upon the expiration date of your own insurance policy.

In that situation, request the issuance of a cover letter or binder to help you provide proof of insurance until the actual policy arrives.

Your lien-holder may require you to prove the existence of insurance to prevent the lender from issuing insurance that they may purchase for you.

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