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What Is Class Rate?

Mary McMahon
By
Updated Feb 27, 2024
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In financial terms, “class rate” can refer to two different things: the practice of classifying similar items for the purpose of standardizing shipping charges, or grouping similar insurance risks together for the same rate. Both require a financial analysis to determine what should go into each class, and what rate the company should charge for items in that class, given financial risks and liabilities. As long as something qualifies for the class rate, it should receive that rate, unless there are special circumstances.

Shipping companies group goods by type, on the basis of packaging and contents, to establish a class rate. Goods that are easy to transport tend to have a lower rate, while goods requiring special care are shipped at a higher one. The speed desired on the part of the client is also a consideration. This can be seen in the mail systems used in many nations, where letters may travel first class because they are easy and fast to transport, while packages go second or third class unless the customer is willing to pay a special fee to get them to their end destination sooner.

Freight companies publish tables of the kinds of goods they transport, and the class rate for various components and shipping speeds. This allows customers to select the most appropriate class for their services. Companies may be able to negotiate a special class rate if they are willing to charter a whole ship for transport. The shipping company can agree to offer a lower rate as a benefit to the customer in exchange for the bulk shipping.

Insurance companies divide hazards by class to determine the appropriate rates to charge. They look at demographics of different risks, like the cost of insuring a 60 year old man versus a 25 year old woman, and assign a class rate to each. This can be a general rule of thumb to use as a starting point when writing a policy. The creation of class rates helps insurance companies manage risks because they can charge an amount appropriate to a policyholder's class.

Class rates are available for home, car, health, life, and other kinds of insurance. Customers of insurance companies may be able to get discounts in exchange for higher deductibles or other concessions; drivers, for example, may take a defensive driving course to receive an insurance discount. The insurance company lowers the rate in these cases to reflect the fact that the policyholder is actively working to reduce risk.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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