What Is Composite Rating in Insurance?

When you check into insurance plans, especially health and auto, you may come across the term "composite rating." This is a common method used by insurance companies to help them determine how much to charge for various types of group insurance. The cost of coverage is averaged over the entire group, so everybody pays the same regardless of specific risk.

Typically, when determining a composite rating, an insurance company adds together all of the risk factors and comes up with an average cost of service for each covered person. Additional risk factors such as age and lifestyle are not figured into a composite rating. The results in an average premium rate that everyone in the group pays. While the rate is typically better for older people or people who have chronic problems or are otherwise a higher risk, those who are young and healthy tend to pay more for composite insurance than they would otherwise have to pay.