SR-22 Insurance Explained: What It Is and How Long

Insurance glossary

40 terms

Liability coverage

Part of a car, home or renters policy that pays for injuries and property damage you cause to other people, up to your limits. It also usually pays for your legal defense if you are sued. It does not pay for your own injuries, your own car or your own home.

Bodily injury liability (BI) (Bodily injury liability)

Car insurance that pays for injuries you cause to other people in a crash, such as medical bills, lost wages and pain and suffering. It has two limits: one for each injured person and one for everyone hurt in a single accident. Most states require a minimum amount.

Property damage liability (PD) (Property damage liability)

Car insurance that pays for damage you cause to other people's property in a crash, such as their car, a fence, a building or a light pole. It is the third number in limits like 25/50/25. It does not pay to repair your own car.

Personal injury protection (PIP) (Personal injury protection)

Car insurance that pays medical bills, and often part of lost wages, for you and your passengers after a crash, no matter who caused it. It is required in no-fault states and offered in some others. The amount and what it covers depend on your state.

Medical payments coverage (MedPay) (Medical payments coverage)

Optional car insurance that pays medical and funeral costs for you and your passengers after a crash, no matter who was at fault. It is usually a small amount, such as a few thousand dollars, and does not cover lost wages. Some states require insurers to offer it.

Uninsured/underinsured motorist (UM/UIM) (Uninsured/underinsured motorist coverage)

Car insurance that pays for your injuries, and in some states your car damage, when the at-fault driver has no insurance or not enough to cover your costs. It can also apply in some hit-and-run crashes. Some states require it; others require insurers to offer it.

Collision coverage

Car insurance that pays to repair or replace your own car after it hits another vehicle or an object, or rolls over, no matter who is at fault. Your deductible applies. It is optional by law, but a lender or leasing company usually requires it on a financed car.

Comprehensive coverage

Car insurance that pays for damage to your own car from things other than a collision, such as theft, fire, hail, flood, falling objects or hitting an animal. Your deductible applies. It is optional by law, but lenders usually require it when you finance or lease.

Deductible

The part of a covered loss you pay yourself before insurance pays the rest. With a $1,000 deductible and a $4,000 covered loss, the insurer pays $3,000. A higher deductible usually lowers your premium. Deductibles generally apply to damage to your own property, not to liability claims.

Premium

The price you pay for an insurance policy. You can usually pay it in full or in installments for each policy term, often six or twelve months. Your premium depends on things like your coverage, limits, deductible, location and, for car insurance, your driving record and vehicle.

Declarations page

The summary page, usually at the front of your policy, that lists who and what is insured, the policy period, each coverage, its limits and deductibles, and the premium. It is the fastest way to check your coverage or compare it with a new quote. Insurers often call it the dec page.

Endorsement (rider) (Endorsement / rider)

A written change added to an insurance policy that adds, removes or changes coverage. On home and renters policies it is usually called an endorsement; on life policies it is often called a rider. Examples include scheduling jewelry or adding a waiver of premium. It often changes the premium.

Exclusion

Something a policy says it does not cover. Standard homeowners and renters policies, for example, usually exclude flood and earthquake damage. Exclusions are listed in the policy wording, not always on the declarations page, so read them or ask your insurer before you rely on coverage.

Actual cash value (ACV) (Actual cash value)

A way of paying claims that gives you what a damaged or stolen item was worth at the time of loss: the cost to replace it minus depreciation for age and wear. ACV pays less than replacement cost for older items, and the premium is usually lower as a result.

Replacement cost value (RCV) (Replacement cost value)

A way of paying claims that gives you what it costs to repair or replace a damaged item with a similar new one, without subtracting depreciation, up to your limits. Some insurers pay the actual cash value first and the rest after you replace the item. It usually costs more than ACV.

HO-3 policy (HO-3)

The most common homeowners policy form for a house. It covers the home itself against all risks except those it specifically excludes, and covers your belongings against a list of named perils. It also includes personal liability, medical payments to others and loss of use coverage.

HO-4 policy (HO-4)

The standard renters insurance form. It covers your belongings against named perils such as fire and theft, plus personal liability, medical payments to others and extra living costs after a covered loss. It does not cover the building, which is the landlord's responsibility to insure.

HO-5 policy (HO-5)

A broader homeowners policy form that covers both the house and your belongings against all risks except those it excludes. It usually costs more than an HO-3 and may pay replacement cost for belongings. Insurers often offer it for newer or well-kept homes.

HO-6 policy (HO-6)

Insurance for condo and co-op unit owners. It covers your belongings, the parts of the unit you own under your association's rules, such as interior walls and fixtures, your liability and loss of use. The association's master policy covers the building's shared parts.

Coverages A-F (Coverages A through F)

The six standard parts of a homeowners policy: A, dwelling (the house); B, other structures (garage, fence, shed); C, personal property (belongings); D, loss of use (extra living costs); E, personal liability; and F, medical payments to others. Each has its own limit on the declarations page.

Loss of use

Coverage D on a homeowners or renters policy. If a covered loss makes your home unlivable, it pays extra living costs above your normal spending, such as a hotel, rent and higher food costs, while repairs are made. Limits are often set as a share of your dwelling or property coverage.

Named perils

A policy that covers only the causes of loss listed in it, such as fire, lightning, windstorm, theft and vandalism. If a cause is not on the list, it is not covered. Renters policies and the belongings part of an HO-3 policy usually work this way.

Open perils

A policy that covers every cause of loss except those it specifically excludes, such as flood, earthquake, wear and tear or neglect. It is broader than named perils coverage. The house part of an HO-3 policy and the whole of an HO-5 policy usually work this way.

SR-22

A form your car insurer files with the state to prove you carry at least the required liability coverage. A state may require it after a serious violation, such as driving uninsured, a DUI or a license suspension, usually for several years. It is a filing, not a type of insurance.

FR-44

A proof-of-insurance filing used in Florida and Virginia after certain violations such as a DUI. It works like an SR-22 but requires liability limits higher than the normal state minimum. Your insurer files it with the state, and you must keep the coverage for the required period.

No-fault insurance

A car insurance system in which your own personal injury protection pays your medical bills and some lost wages after a crash, whoever caused it. In return, your right to sue the other driver for pain and suffering is limited unless your injuries pass a threshold set by state law.

Tort threshold

The line in a no-fault state that an injury must cross before you can sue the at-fault driver for pain and suffering. It may be a dollar amount of medical bills or a level of injury, such as serious disfigurement. Each no-fault state sets its own threshold.

Gap insurance

Optional coverage for a financed or leased car. If the car is totaled or stolen, it pays the difference between the car's actual cash value, which your collision or comprehensive coverage pays, and the amount you still owe on the loan or lease. Some gap policies also help with your deductible, so check the terms.

Umbrella insurance

A policy that adds extra liability coverage on top of your car, home or renters policy, often sold in $1 million amounts. It pays after your other policy's limits run out and can cover some claims they do not. Insurers usually require minimum liability limits on your other policies first.

FAIR plan

A state-created program that offers basic property insurance to homeowners who cannot find coverage in the regular market, often because of high wildfire, storm or other risks. Coverage is usually more limited than a standard homeowners policy. FAIR stands for Fair Access to Insurance Requirements.

National Flood Insurance Program (NFIP) (National Flood Insurance Program)

A federal program run by FEMA that sells flood insurance for homes, contents and businesses through insurers and agents. Standard homeowners and renters policies usually exclude flood. NFIP policies generally have a 30-day waiting period before coverage starts, with some exceptions.

Term life insurance

Life insurance that covers you for a set period, such as 10, 20 or 30 years. If you die during the term, your beneficiaries receive the death benefit. If you outlive the term, coverage ends, usually with no cash value. It usually costs less than permanent coverage for the same amount.

Whole life insurance

Permanent life insurance that lasts your whole life as long as premiums are paid. Premiums usually stay level, and the policy builds cash value at a guaranteed rate. It usually costs much more than term life for the same death benefit, in exchange for lifelong coverage and savings features.

Cash value

The savings part of a permanent life insurance policy, such as whole or universal life. Part of each premium goes into it and it grows over time. You may be able to borrow against it or withdraw it, but loans and withdrawals reduce the death benefit if not repaid.

Beneficiary

The person, people or organization you name to receive the death benefit from a life insurance policy. You can usually name primary and backup (contingent) beneficiaries and change them later. Keeping your beneficiaries up to date after marriage, divorce or a birth avoids problems later.

Free-look period

A short window after you receive a new life insurance or annuity policy when you can cancel it for a refund. Its length is set by state law and policy type, often 10 to 30 days. The policy should state the free-look period on or near its first page.

Underwriting

The process an insurer uses to decide whether to cover you and at what price. For car insurance it may look at your driving record and vehicle; for home insurance, the building and location; for life insurance, your age, health and habits, sometimes with a medical exam.

Credit-based insurance score

A score built from information in your credit report that some insurers use to help set car and home insurance prices. It is different from a lending credit score. Some states limit or ban its use, so whether it affects your premium depends on where you live.

Claims-free discount

A lower premium some insurers give when you have gone a set number of years without filing a claim. The rules, such as which claims count and how many years qualify, vary by insurer. Ask your insurer whether you qualify, especially before filing a small claim.

Binder

A temporary written agreement that proves you have insurance coverage until the full policy is issued. Lenders often ask for one at a home or car purchase. It lists the main coverages, limits and dates, and is valid only for a short, stated period until the policy itself is issued.

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