Florida Insurance Claims Adjuster License Practice Exam

What purpose does a binder serve in insurance?

1. It acts as a temporary contract until the policy is issued

2. It binds the policyholder to a rate increase

3. It compiles the insurance terms and conditions

4. It permanently seals the insurance agreement

The correct answer is: It acts as a temporary contract until the policy is issued

A binder is a temporary contract that is given to the policyholder until the actual insurance policy is issued. It acts as a confirmation that coverage has been secured and provides evidence of the agreement between the insurer and the policyholder. Option B is incorrect because binders do not bind the policyholder to a rate increase. Option C is also incorrect as the binder only includes the basic terms and conditions of the insurance coverage, but may not include all details. Lastly, option D is incorrect because binders are temporary and are replaced by the official insurance policy, which permanently seals the agreement.