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If you’ve been forced into the world of high-risk car insurance, regardless of the reason, you need to know how the system works order to make the most of a less-than-desirable situation. Being considered a high-risk driver doesn’t necessarily mean you have to settle for whatever your car insurance company offers.
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Take a few minutes and read our facts you should know about high-risk car insurance and better arm yourself to get the best possible policy. For starters, note that insurance companies prefer the term nonstandard over high-risk car insurance.
Referring to a policy as nonstandard is less judgmental and a bit more palatable for those drivers who have to purchase it. Regardless of the term used however, be sure that the driver purchasing this kind of insurance is being forced to do so because his or her actions behind the wheel indicate an unusually high risk of future accident claims.
Drivers Typically Required to Purchase High Risk Insurance
In most states, it’s not legal for insurance companies to deny a driver coverage simply based on income level, geographic location, and other criteria not related to risk. However, they can deny coverage based upon a combination of factors that, together, constitute an unusually high risk of a very expensive claim or jury award. Most of the time these factors are part of an individual’s formal driving record.
At the top of the list of high-risk candidates are those who been convicted of multiple DUI/DWI offenses. These types of offenses are especially risky from an insurance standpoint because the associated accidents often result in serious injuries or deaths. Furthermore, the number of repeat offenders in the United States is alarming by anyone’s standards.
According to Mothers Against Drunk Driving (MADD) there are approximately 17 million drunk driving arrests in the United States every year. Of that number, approximately one third are repeat offenders. Insurance companies know that drunk drivers are often not compelled to stop drinking even after their first or second arrest and conviction.
Every time a driver gets behind the wheel drunk, their chances of causing a serious accident go up exponentially.
Others who might be forced into high-risk car insurance include those convicted of vehicular manslaughter, hit and run, or any other number of serious offenses. Also on the list of high-risk drivers are those with multiple speeding tickets, multiple insurance lapses, and convictions for driving without insurance.
How Insurance Companies Define the Risk
Insurance companies have several different criteria by which they define risk and calculate premiums. The state of Oregon lists the four most common criteria as:
- Driver history
- Make and model of the car being covered
- Prior insurance history
- Credit history
Insurance companies score each of these categories, with those numbers going into a complicated mathematical formula used to determine premium levels.
Though some may think this rating system is unfair, insurance companies have decades of statistical data to prove their formulas are remarkably accurate. Most larger insurance companies also employ a small army of actuaries whose job it is to continually crunch numbers gleaned from statistical analysis in order to verify premium calculation formulas. These actuaries are capable of predicting insurance company payouts fairly accurately.
High Risk Insurance Costs More
Taking into account all we’ve talked about thus far, it’s easy to see why high-risk insurance is so expensive. When a driver increases the likelihood that an insurance company will have to make a large payout, the insurance company needs to collect more money in premiums in order to offset that cost. It follows the simple laws of basic accounting.
When insurance companies collect higher premiums from high-risk drivers they are relying on the hope that those drivers will never file a substantial claim. That notwithstanding, the company still needs adequate cash flow by way of premiums to insure they remain liquid. This is necessary due to the business model insurance companies use to earn a profit.
According to the law, an insurance company must keep so much money in reserve to pay out anticipated claims. What’s left over is invested in various securities like stocks, bonds, and private equity. The return on those investments is largely what keeps insurance companies in business. Without the premium monies to invest, most insurance companies wouldn’t be able to keep up with the amount of funds they pay out.
High Risk Only Temporary
Unless a driver makes a career of behaving dangerously behind the wheel, the designation as a high-risk driver is usually only temporary. Why? Because being designated as high-risk depends largely on a person’s driving record. As accidents and violations are cleaned off your permanent record, you represent less risk to your insurance company.
The states have differing rules about how long certain things remain on your record.
For example, Nevada has one of the strictest laws allowing a DUI conviction to remain on your record for up to 10 years.
They also impose stiff penalties in terms of license and registration suspension and SR-22 requirements. Nevada certainly qualifies as one state where you don’t want to be caught driving drunk.
That said, if a Nevada driver kept his nose clean for 10 years following a DUI conviction, he would his clean driving record restored. Then he would be able to drop his high-risk car insurance in favor of a standard, less expensive policy.
Other states treat driving history and insurance premiums a bit differently. For example, a few allow offenses like DWI and vehicular manslaughter to remain on your driving record permanently. Insurance companies will be barred from considering those convictions after a set number of years. But those convictions never completely go away because they are considered criminal offenses.
Options for High-Risk Drivers
If you’re designated a high-risk driver you have several options for car insurance. First, you might be able to stay with your current insurance provider while simply being bumped into a high-risk pool. This may be the most favorable option if you have a good relationship with your insurance company. Once they see you’re making the effort to do better they are more likely to reduce your rates as your record improves.
Your second option is to look for a policy with a new insurance company. In most states, insurance companies are not allowed to deny you coverage based solely on the fact that another insurance company has denied you. So just because your current provider refuses to give your policy doesn’t mean the next one will.
Your third option is to look for a specialty insurance company whose only line of business is high-risk drivers. You can often find these kinds of companies in major metropolitan areas with high population densities. This is probably your least desirable option because these companies tend to charge a lot.
If you are completely unsuccessful finding insurance through a standard or specialized carrier, your last option is to go through your state’s assigned risk pool. Every state in the union operates some sort of pool in order to help drivers who can’t get insurance and the other way. As an example, the Arkansas pool is known as the Arkansas Automobile Assigned Risk Plan.
In most states, the high-risk plans are not insurance policies in the strictest sense of the term. Rather, insurance companies licensed in those states are required to participate in the plan by offering policies to those drivers the state assigns to them. In turn, the state commits capital to underwrite those policies so insurance companies don’t take the risk of loss.
The last thing you need to know about high-risk car insurance is that many states attach SR-22 requirements as a contingency for obtaining it. An SR-22 instrument is an affidavit completed by your insurance company, and signed by you, stating that you have a car insurance policy and the financial means to keep it going throughout the duration of the filing. If at any time you allow your insurance policy lapse, you will face stiff penalties from your state.
States have different rules regarding SR-22 affidavits, both in terms of their duration and what triggers the requirement to obtain one.
Your state insurance department, department of motor vehicles, and insurance company should all be able to provide you with the necessary information should you need to file an SR-22. Keep in mind that some states have reciprocity agreements that would require you to continue an SR-22 filing even if you move to another state.
In summary, being designated a high-risk driver will require you to purchase high-risk car insurance. There’s simply no way to avoid it. However, keeping out of trouble will eventually allow you to drop your high risk coverage once you record is clean. If you’re currently not subject to high-risk requirements, the best way to avoid them is to obey the law and be safe.
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