Illinois Casualty Insurance State Practice Exam

What is described as a temporary policy that serves until a final policy is issued?

1. Certificate of Insurance

2. Binder

3. Exclusion

4. Declaration

The correct answer is: Binder

A binder is a temporary insurance policy that provides immediate coverage until a more formal, permanent policy is issued. This instrument is particularly valuable as it allows individuals or businesses to have protection in place while they wait for the completion of the underwriting process. Binders are often used in various types of insurance, including property and casualty insurance, and can provide coverage for a specific period, typically ranging from 30 to 90 days. In understanding the context, a Certificate of Insurance serves as proof of insurance coverage but does not provide actual coverage itself; it simply verifies that a policy exists. An exclusion refers to specific conditions or circumstances that are not covered by the insurance policy, while a declaration is part of the policy that summarizes important information, such as the name of the insured, the coverage limit, and the policy term. Thus, these terms fail to embody the concept of temporary coverage preceding a final policy issuance, which is the essence of a binder.