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A "Rate" in insurance is the price per unit of insurance coverage. It determines how much you will pay for your insurance policy.

What is a Rate in Insurance?

In insurance, a rate is essentially the cost charged by the insurance company to provide coverage. This rate is multiplied by the number of units of coverage you need to calculate your premium, which is the total amount you pay for your insurance policy.

For example, if you own a business and need $1,000,000 in property coverage, and the rate is 0.002 per $1 of coverage, your premium would be calculated as follows:

Premium= Rate × Coverage Amount

= 0.002 x $1,000,000


This means you would pay $2,000 for your insurance coverage.

Rate Graphic Insurance Glossary

Key Components of the Rate

There are several key components that determine the rate you will be charged for your insurance:

  1. Risk Assessment: Insurance companies assess the risk associated with insuring a particular business. Factors such as the type of business, location, and history of claims play a significant role in determining the rate.
  2. Coverage Amount: The amount of coverage you need directly influences the rate. Higher coverage amounts typically result in higher rates.
  3. Policy Terms: The specific terms and conditions of your insurance policy, including deductibles and coverage limits, will also impact the rate.

Types of Rates

Different types of rates can be applied depending on the nature of the insurance coverage. Here are four common types:

Manual Rate

This rate is determined based on a set of standard rates provided in a manual, often used for common types of insurance like property or liability coverage.

Experience Rate

This rate takes into account the individual history of claims for a specific business. Businesses with fewer claims might benefit from lower rates.

Class Rate

Businesses are grouped into classes based on similar risk characteristics, and a rate is assigned to each class.

Judgment Rate

An underwriter uses their judgment to set the rate based on a thorough evaluation of the business's specific risk factors.