Rate Class
What Does Rate Class Mean?
A rate class is a grouping of individuals that insurers use as a basis for their premium pricing. Depending on the type of risk insured, the rate class can take into account factors such as health status, driving history, or income levels. The insurance company's underwriters are tasked with assigning applicants to rate classes.
It is also called the risk rate.
Insuranceopedia Explains Rate Class
As an illustration, consider the rate classes for life insurance policies. Underwriters classify life insurance applicants according to three rate classes:
- Select
- Preferred
- Standard
Applicants with excellent health conditions and healthy lifestyles will be classed into the select category and be offered a correspondingly more affordable premium. Those whose health and lifestyle are closer to average will be classified as preferred and be offered a premium in the typical range. Those, finally, who have worse than average health and lifestyles could be rated as standard, meaning they would pay the highest premiums.
