CII Certificate in Insurance - Insurance Underwriting Process (IF3) Practice Test

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When might an insurance binder be utilized?

When the policyholder is settling a claim

When seeking to cancel an insurance policy

When coverage is needed before a formal policy is finalized

An insurance binder is a temporary agreement that provides immediate coverage to an insured until a formal insurance policy is issued. This binder is crucial in situations where coverage is essential before the details of the policy are finalized, such as when a person is purchasing a new home or auto and requires immediate insurance protection. Since the formal policy has not yet been issued, the binder allows the insured to have coverage in place, ensuring they are protected against potential risks during the interim period.

This concept underscores the importance of binding coverage in the underwriting process, enabling insurers to provide immediate security while the full terms and conditions of the insurance contract are being arranged.

When assessing the financial stability of an insurer

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