Binder Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Binder, written in plain English, along with examples of how it is used.
What is Binder?
(n) Binder is the principal elements or basic conditions of an agreement which establishes the existence and boundaries with in which the agreement is constructed. Eg. Statement contained in the insurance policies stating that the insured has an insurable interest
History and Meaning of Binder
The term "binder" has been used in legal circles for centuries, with a general meaning of an agreement or contract in which the basic terms have been established, but which has not yet been finalized. The term is often used in the insurance industry, referring to an agreement in which the insurer has agreed to provide coverage to the insured, subject to the conditions set out in the binder.
In essence, a binder is a temporary agreement that establishes the terms of a larger agreement that will be finalized at a later time. It is often used when parties need to move quickly to establish a working relationship, but do not yet have all of the details worked out.
Examples of Binder
An insurance agent may issue a binder to a client who has just applied for insurance coverage, in order to provide immediate coverage while the underwriting process is completed.
A real estate agent may enter into a binder agreement with a potential buyer or seller, specifying the basic terms of the transaction until a formal contract can be drawn up.
A construction company may enter into a binder agreement with a client, specifying the basic terms of the construction project until a formal contract can be drawn up.
Legal Terms Similar to Binder
Memorandum of Understanding (MOU): A non-binding agreement between two parties that outlines the general terms and principles of an understanding or arrangement.
Letter of Intent (LOI): A document outlining the basic terms of an agreement or transaction that two or more parties intend to enter into.
Term Sheet: A non-binding agreement that outlines the basic terms and conditions of a proposed investment, loan or other financial transaction.