What Are Insurance Rating Classifications?
Insurance companies hire underwriters to review many categories to set premium rates for people they insure. High-risks insureds mean the company pays more for claims. Therefore, insurance companies try to collect enough money to cover them.
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Age
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Statistically, younger policyholders carry a higher risk of loss. Young people lack financial experience and often make poor judgments. Older policy holders have more health issues and are closer to death.
History
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Insurance companies review the claims history of policy holders. People who make more claims cost the insurance companies more money. The company will consider lowering premiums based upon the longevity of a policyholder with the company and how many different types of policies they have with the same company.
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Insured Property
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Home Insurance Luxury cars, homes and personal property place a higher burden on the insurance company in the event of a loss. Vehicles with poor safety records carry a greater risk for damage and injury. Homes with pools and trampolines carry a higher probability of injury to a third party.
Credit Scores
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People with good credit scores are typically lower risk. The Insurance Information Institute writes, "People who manage their finances well tend to also manage other important aspects of their lives responsibly."
Location
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Insurances companies use zip codes to tell them the density of the population and the number and total payout of claims paid in that geographical area. Rural areas are less dense and have fewer auto accidents. Hurricane and tornado prone areas have higher property losses. Metropolitan areas have more people with health issues and early deaths, resulting in higher costs for health and life insurance.
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References
Resources
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