Risk Class

What Does Risk Class Mean?

In insurance, a risk class is a group of companies or individuals that share certain characteristics. This grouping provides the insurance company with crucial information that aids in decision-making when approving policies.

Insuranceopedia Explains Risk Class

Insurance companies must determine whether covering certain individuals or companies will be financially viable. They categorize these individuals or companies into groups based on shared traits. For instance, individuals who smoke may pose a higher financial risk for health and life insurance coverage. That’s why life insurance for smokers usually costs more than the same policy would for a non-smoker of the same age. Risk classes also help insurance companies assess the appropriate level of coverage required. Since each insurer weighs these traits a little differently, two healthy people the same age can be quoted very different prices, which is why it helps to compare average life insurance costs across a few carriers before deciding on a policy.