What Is High-Risk Insurance Called? Terminology Explained

Not everyone fits neatly into the standard risk profile that most insurers prefer. When individuals or entities present a higher likelihood of incurring losses or filing claims, they may find themselves needing a specialized form of coverage. This area of the market is commonly referred to as high-risk insurance, designed for situations where typical insurers are unwilling or unable to offer policies due to elevated potential for claims.

Common Terminology for High-Risk Insurance

“High-risk insurance” functions as an umbrella term, encompassing various specific names and types of coverage designed for elevated risk profiles. One frequently used term is “non-standard insurance,” which specifically caters to drivers or properties that do not meet the typical underwriting criteria of conventional insurers. Similarly, “substandard insurance” describes policies for individuals who pose a higher risk of filing a claim due to factors like poor health or driving records, often coming with special provisions or higher premiums.

For auto insurance, individuals unable to obtain coverage in the general market may be placed into “assigned risk plans.” These state-mandated programs require insurance companies to collectively provide coverage for drivers deemed too risky for standard policies. In the realm of property insurance, “Fair Access to Insurance Requirements (FAIR) plans” serve as a last resort for homeowners who cannot secure coverage from private companies. Another category is “surplus lines insurance,” which covers unique or high-risk exposures that standard insurers will not underwrite, often involving specialized property or liability coverage.

Defining High-Risk Factors

Several characteristics, behaviors, or situations can classify an individual or property as high-risk by insurance companies. For auto insurance, a history of multiple accidents or numerous traffic violations, such as driving under the influence (DUI) or excessive speeding, typically leads to a high-risk classification. A lapse in prior insurance coverage or a poor credit history can also cause insurers to view a driver as higher risk. Young or inexperienced drivers, along with senior drivers, may also face higher premiums due to perceived increased risk based on age.

Regarding property insurance, homes located in areas prone to natural disasters, such as floods, wildfires, or hurricanes, are often deemed high-risk. Older homes with outdated electrical wiring, plumbing systems, or roofing can also increase the risk profile due to a higher likelihood of claims. A property’s history of frequent claims, regardless of the previous owner, indicates a higher potential for future losses, as does living in a neighborhood with high crime rates. Properties left vacant for extended periods or those with certain attractive nuisances like swimming pools or trampolines can elevate the risk assessment.

How High-Risk Insurance Differs

High-risk insurance policies generally differ from standard policies in several key aspects, primarily regarding cost, coverage, and accessibility. Due to the increased likelihood of claims, high-risk policies typically come with significantly higher premiums, often 25% or more compared to standard rates. This higher cost reflects the elevated financial exposure insurers undertake when covering these risks.

Coverage limitations are common with high-risk policies, which may offer lower coverage limits, higher deductibles, or exclusions for specific types of incidents. For example, some FAIR plans may only provide dwelling and personal property coverage on a named-perils basis, excluding liability or loss of use. Accessing these policies often requires navigating specialized channels, such as surplus lines brokers or state-mandated programs like assigned risk pools, rather than direct access through mainstream insurers.