Life Insurance: What Is a Binder Agreement?

Whenever you are about to purchase life insurance, the insurance agent might issue you a binder agreement. Here are the basics of what a binder agreement is and how it is used.

Binder Agreement

A binder agreement is a type of agreement between you and an insurance provider that will provide you with the same benefits of a traditional insurance policy. Typically, this type of agreement is issued whenever you apply for life insurance. This type of agreement is issued because the underwriters at the life insurance company have not had time to review your application. If a company issues a binder agreement to you, it is going to provide you with life insurance coverage even though you do not technically have a policy with them.

Considerations

Whenever you have a binder agreement, it is going to expire on a specific date in the future. For example, the binder agreement might last for 10 days after it is issued. You should also know that these agreements can be oral or written. However, just to avoid any problems, you should most likely get a written agreement. This type of coverage is not typically immediate. Most of the time, it will cover you the following day after you are notified of the binder agreement.

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