Types of Insurance & Uninsurable Risks

Insurance companies maintain profitability in large part due to their ability to classify risks and price them appropriately. In some cases, an individual may be considered as such a poor risk that a company may consider it an unwise business practice to ensure him at all. An uninsurable risk can occur with common types of insurance like auto, life, health and home coverage. In some cases, high-cost alternatives may be available.


Auto insurance risks are typically classified as standard and nonstandard. A standard risk is one where the driver has had a minimal number of accidents and violations, indicating that he is a relatively safe operator. Drivers who have had a large number of at-fault accidents or have committed serious violations, such as DUI or reckless driving, may be considered uninsurable in the standard market. These drivers will need to obtain more expensive nonstandard coverage, or even enter his state's assigned risk program, which is essentially an insurance pool paid for by all insurance companies registered in the state.


Insurability for life coverage depends on factors such as age, health history, occupation and lifestyle. For instance, someone with a history of cancer or who engages in a hazardous avocation such as skydiving or hang gliding will probably be viewed as uninsurable by life insurance companies. These individuals may need to seek coverage through employers or by obtaining a guaranteed-issue policy that may offer low coverage amounts. Some forms of life insurance offer a convertibility provision that allows the insured to purchase additional coverage at a future date regardless of health status.


As with life insurance, a person's health history plays a major role in his ability to obtain private health insurance. Insurers may consider someone who has a pre-existing condition like cancer or diabetes as uninsurable. As of July 1, 2011, previously uninsurable individuals can apply for coverage under the Pre-Existing Condition Insurance Plan, part of the Patient Protection and Affordable Care Act enacted by Congress and the Obama administration. The plan provides for the creation of a pool for high-risk insurance candidates in each state. The act was designed to provide temporary coverage until 2014 when insurance exchanges go into effect.


Individuals may lose their homeowners insurance due to excessive claims or a home may be considered uninsurable simply because it is located in an area subject to natural disasters like hurricanes. Homeowners who have difficulty obtaining insurance on the standard market may need to seek coverage under their state's Fair Access to Insurance Requirements Plans if it offers the program. FAIR Plans are designed to provide coverage for homeowners who typically have been turned down for a policy at least twice by private insurers.