Category: 

What Is a Composite Rate?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 August 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
Although Stonehenge is the most famous, there are over 1,000 ancient stone circles standing in the British Isles.   more...

September 26 ,  1960 :  The first televised US Presidential debate took place.  more...

A composite rate is a type of pricing strategy that is often utilized in the preparation of insurance policies. With this type of pricing arrangement, attention is given to the variety of covered events that may occur, as well as the potential costs associated with those events, up to the amount of coverage provided for each event. Various factors related to those events are prioritized and given consideration, allowing the insurer to determine the amount of the monthly, quarterly or annual premium that will apply to the insurance plan.

Key to the process of creating a viable composite rate is the need to identify all potential issues that could arise and result in a claim on the insurance coverage. For example, if the insurance has to do with protecting a residence, the considerations will include issues such as damage to the home due to theft, any of the several weather conditions identified as covered events in the terms of the policy, and even issues such as the failure of plumbing and electrical systems. The insurance provider will consider the level of coverage provided for each of these events, and consider those potential costs when calculating the composite rate that will ultimately apply to the entire policy.

Ad

Along with allowing for the scope of coverage provided for covered events, the composite rate will also involve taking into consideration the likelihood of those events occurring. For example, hurricane damage would be more of a possibility for a residence located near the seaside and much less likely for a home located well inland. At the same time, a home located in an area that experiences a certain level of tornado activity during a portion of the year may find that the higher likelihood of wind damage to the home may mean that the composite rate is higher than for a residence located in an area where wind damage is relatively unlikely.

While many of the criteria used to calculate a composite rate are found with just about every insurance provider, the way that the information is assimilated and used in the calculation process may be slightly different. For this reason, consumers should make it a point to compare similar insurance plans offered by different providers. There is always the chance that one in particular will offer the same level of coverage but at a composite rate that is significantly lower than the competition.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email