What Is An Insurance Binder?

Congratulations!  You’ve waived conditions and the home is set to be yours in only 30 days.   Your real estate lawyer contacts you to set up an appointment and says you need to bring an insurance binder.

What’s an insurance binder?

Before a mortgage can be advanced, you (the buyer) must arrange house insurance.  A  binder from the insurance company is simply a document that verifies that the homeowner’s property is/will be properly insured come possession. Lenders insist on property insurance because your property is their  security for your loan.

Your insurance company will go through a checklist of questions to calculate what the replacement cost for your new home will be.   The replacement cost differs from market value or what you paid for the home.

The Insurance Bureau of Canada explains the difference between replacement cost and market value:

Replacement cost is the cost of rebuilding your home in the event that it’s destroyed. It includes things such as the price and availability of skilled labour, debris removal, extra expense due to more demanding building codes, and more. Upgrades, renovations and other improvements can also make rebuilding a home more expensive than originally estimated, affecting the final replacement cost.

Market value is based on a number of factors that have no direct correlation to your home’s replacement cost (in other words, the cost of reconstructing your home). These include location, land value and the amount paid for surrounding homes.

I’ll provide you with a spec sheet of your home so that when you call your insurance agent you’ll be able to answer the following questions they’ll use to calculate the proper amount of insurance:

  • Year built
  • Total square footage (finished/living area)
  • Type of electric service and wiring
  • Heat source
  • Use (single-family or multi-family)
  • Style (e.g., bungalow or split level)
  • Number of stories (e.g., 1, 1½, 2)
  • Foundation type (e.g., poured concrete slab, crawlspace)
  • Finished basement (including percentage finished)
  • Exterior wall finish (e.g., vinyl siding, stucco)
  • Material types for floor coverings (e.g., hardwood), ceilings (e.g., drywall) and wall surfaces (e.g., wallpaper)
  • Roof material types & age (e.g., asphalt shingles)
  • Number of kitchens and quality of finishes (e.g., granite countertop)
  • Number of bathrooms
  • Garage or carport and size (e.g., 1-car, 2-car), or other structures attached to the house (e.g., breezeway)

Depending on the location, age and other factors of the home, we might have already had getting insurance a condition of the offer.   That will be the subject of a future post.

2 responses to “What Is An Insurance Binder?

  1. Very informative as always Mike! I continue to recommend friends to your blog for information and put in a good word for you if they’re looking for a realtor. Top notch.

  2. Thank you very much – I greatly appreciate it.

    Less than a month to go before your possession! 🙂

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