Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What does an insurance binder represent?

1. A permanent agreement for coverage

2. A temporary contract agreeing to provide coverage

3. A summary of claims history

4. A notification of policy cancellation

The correct answer is: A temporary contract agreeing to provide coverage

An insurance binder serves as a temporary contract that provides coverage while the formal insurance policy is being prepared. It functions essentially as a bridge between the initial agreement and the final contract, ensuring that the insured has coverage during this interim period. This is crucial, as it allows individuals or businesses to have immediate protection without waiting for the policy documents to be finalized and issued. By indicating that the binder is temporary, it clarifies that it does not replace the formal insurance policy, which is more detailed and comprehensive. This distinction is important for both agents and clients to understand; while coverage is active, the terms and conditions outlined in the forthcoming policy will ultimately govern the relationship and the obligations of all parties involved.