Washington State Insurance Practice Exam

What is an "insurance binder"?

1. A permanent insurance contract

2. A temporary insurance contract providing immediate coverage

3. A summary of claims paid by an insurer

4. A detailed policy document outlining exclusions

The correct answer is: A temporary insurance contract providing immediate coverage

An "insurance binder" is indeed a temporary insurance contract that provides immediate coverage to the insured. This type of contract serves as a short-term agreement between the insurance company and the insured, ensuring that coverage is in place while the formal policy is being prepared and issued. It allows the insured to have protection even before they have received their actual policy documents. Binders are particularly useful in situations where individuals need coverage quickly, such as when purchasing a new vehicle or home. They can last for a limited time, often until a specified date or until the insurer issues the permanent policy. The other options do not accurately describe what an insurance binder is. A permanent insurance contract refers to the actual policy that is active for a long duration or for the life of the insured. A summary of claims paid is unrelated to the concept of a binder, focusing instead on the insurer's historical claims activity. Lastly, a detailed policy document outlining exclusions is also not a binder; rather, it is the formal policy itself that provides comprehensive details about coverage, limitations, and exclusions.