A term indicating a preliminary
agreement between parties evidencing a
meeting of the minds and remaining in effect
until the principal agreement can be
executed.
Binders are most frequently encountered
in insurance-related discussions concerning
immediate coverage granted by an insurance
broker pending formal acknowledgement, i.e.,
an insurance policy from the insuring
company. A binder is usually limited to a
single page general description of coverage
in anticipation of a fully detailed policy.
The binder is subject to actual policy
conditions and is signed by an authorized
representative.
Example
of Binder
Buyer Jones is arranging insurance
coverage on his new commercial building and
requires immediate confirmation regarding
coverage for purposes of mortgaging the
property. Accordingly, the insurance broker
will issue a binder in the amount of
$500,000 and provide a one-page letter
detailing the name and address of the
insured, the property being covered, the
amount of coverage, and his (insurance
broker) signature binding the property until
the policy is issued.
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