Louisiana P&C Adjuster Practice Exam

What is a temporary policy issued while an insurer makes a decision on an application called?

1. A hold

2. A bind

3. A binder

4. A gap policy

The correct answer is: A binder

A temporary policy issued while an insurer makes a decision on an application is known as a binder. A binder serves as a provisional agreement that grants immediate coverage to the applicant while the insurer reviews the application and conducts any necessary underwriting processes. This allows the insured to have coverage in place without delay, ensuring that they are protected during the waiting period. The use of a binder is particularly important in situations where coverage needs to be in effect immediately, such as when purchasing a new home or a vehicle. The binder will specify the coverage limits, types of coverage, and any conditions that apply, even though it is not a formal insurance policy. In contrast, terms like "gap policy" refer to insurance designed to fill a coverage void rather than serve as a temporary agreement during the application process. "Hold" and "bind" do not accurately describe this temporary arrangement in the insurance context, making "binder" the appropriate terminology for the scenario presented.