According to the law, what is the reason a lender might refuse to accept a binder as evidence of insurance?

The correct answer relates to the reasonableness of the binder as evidence of insurance. A binder is typically a temporary or preliminary agreement that indicates insurance coverage is forthcoming but may not fully establish the terms and conditions that a formal policy would include. Lenders often require comprehensive proof of insurance before accepting a binder because it is essential for protecting their interests, especially concerning property that serves as collateral for a mortgage.

A lender may view a binder as unreasonable due to its lack of full details and concrete guarantees that are usually present in a formal insurance policy. This lack of comprehensive information might create uncertainty about the coverage's scope, duration, and the specific risks that are insured, making a lender reluctant to rely solely on it. In contrast, a formal policy provides a more robust and definitive account of coverage, which aligns better with a lender's requirements for risk mitigation. Thus, the rationale behind rejecting a binder centers on the necessity for certainty and completeness in insurance coverage when it comes to financing agreements.