Bound Coverage Definition
The Dictionary of Insurance Terms and Definitions
Binding coverage means that an insurer extends temporary coverage to an applicant during the application process (before his/her application is actually approved). This is a valuable service, since the insurance company often requires several weeks to finish processing an application. The terms of bound coverage can differ from the terms of the policy under application, however.
If an individual were to die while protected by bound coverage (before the policy on his/her life were actually issued) the yet-nonexistent policy would only pay out its death benefit if the applicant truly qualified for the policy being considered. The insurance company would finish the underwriting process, even though the insured had already died. If the insurer ended up approving the policy, then the policy's beneficiaries would receive the policy's death benefit.
In order to bind coverage, you must include your first premium payment with the submission of your insurance application. Bound coverage relies on the assumption that an applicant will be approved coverage for the rate class under which he/she applies, so the size of the payment that you send in should be equal to the price he/she was quoted at the time he/she requested a life insurance quote.
