Decoding the Mysteries of High-Risk Car Insurance

When it comes to who qualifies, formulas and definitions vary widely among states and insurance firms.

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Twice this year, Iowa Gov. Terry Branstad made minor headlines when his official vehicle was pulled over for speeding. He was fortunate. On both occasions, someone else was behind the wheel and cited with a ticket. If Branstad had been in the driver's seat, he would now be sweating each time his foot hits the gas. It's that third ticket – in a short span of time – that sometimes triggers your insurance company to qualify you as high-risk driver.

You don't want that to happen.

There are three types of car drivers, as far as the insurance industry is concerned: preferred risk, standard risk and high risk. It can be easy to forget about that last one, if you've been paying preferred- or standard-risk premiums for some time. If you're considered a high-risk driver, your payments can go up two, three and sometimes four times the amount a comparable preferred-risk driver would pay. Unfortunately, how the industry defines high-risk insurance isn't exactly cut and dry, since formulas and definitions vary widely among states and insurance companies. So if you're curious about how one becomes a high-risk driver, and how to avoid becoming one, here's the deal.

[Read: Do You Have the Right Car Insurance?]

Some of it is the luck of the draw. Besides the fact that you drove through a restaurant instead of using its drive-through, or whatever your bad driving incident was, how you get labeled a high risk-driver may depend on what state you live in and who your insurer is. Because insurance is regulated by each state, there is no national standard indicating how many moving violations you can get before you become a high-risk driver.

It also comes down to the standards of your insurance company, according to Dan Weedin, a Seattle-based insurance consultant who advises insurance buyers and was previously an underwriter and agent. What will bother one insurance company may not bother another, he says.

The formula insurance companies use to classify someone as a high-risk driver is a bit of a mystery, says Joel Ohman, a Tampa, Fla.-based certified financial planner and founder of CarInsuranceComparison.com.

He says the high-risk driver designation varies by each company's classification formula, "which they like to keep as proprietary as they can for competitive reasons," he adds.

Nevertheless, Ohman says some insurance firms specifically target high-risk drivers while others make it clear that they aren't interested. "Think of the companies that target safe drivers by offering discounts if they go for a certain number of months accident-free," Ohman says.

Some of it depends on points. Most states have a points system, or at least something close to one. When a police officer cites you for an infraction, points land on your driver's license, which can cause your insurance rates to rise, especially if you rack up enough to be classified as a high-risk driver.

While you might find another insurance company that will offer you lower rates – and you should shop around – there's little to no chance you could go to another insurance company that won't learn about your past. "Everyone knows your driving history," Weedin says. "With technology today, it's like your medical record. It follows you around."

And all of it depends on how you've been driving. No surprise: You'll typically be labeled a high-risk driver if it's determined you were at fault in a car wreck, and especially if people were injured. And if an insurance company learns about a DUI, you will be designated a high-risk driver. In that case, assuming your license hasn't been revoked, you'll usually see more than your rates go up (generally triple to four times the amount, most experts say). You may also need a CR-22 or FR-44 form.

[Read: How Bad Behavior Affects Your Bottom Line.]

Your insurance company will fill the form out for you, and it's apparently a straightforward, quick process. The form verifies that you have auto insurance liability coverage, and it generally means you were convicted of driving under the influence, reckless driving, or perhaps you were driving previously uninsured and got into an accident.