Merit Rating

Published: | Updated: January 9, 2018

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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.

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