Definition - What does Merit Rating mean?
A merit rating is the basis for calculating a premium on auto insurance. It is based on a policyholder's record as a driver or operator of a vehicle. A high rating can translate to a high premium.
Insuranceopedia explains Merit Rating
Insurance covers risk. The higher the risk, the higher the premium paid by the policyholder since higher risks mean a greater potential financial loss for the insurer.
Those who want to purchase auto insurance and have no record of being exposed to risks in the past will be charged a more affordable premium. If they have committed traffic violations or figured in accidents, this will result in a higher merit rating, which will, in turn, result in a more expensive premium.
The merit rating plan gives high points to those who have been involved in serious driving accidents and may, conversely, give discounts to accident-free drivers.