Your credit score can affect many of the major purchases you make in life, from renting a home to buying a car – and even buying insurance. Your credit can affect the cost of various types of insurance you buy, but it depends on what type of insurance you’re buying and what company you’re buying from, among other things. Many people wonder if your credit score can affect the cost of your life insurance specifically. Here’s what you need to know about the correlation between credit and life insurance.
Life Insurance vs. Other Types of Insurance
You might already be aware that your credit score can be very directly correlated to the cost of your homeowners’ insurance or your car insurance. However, when it comes to buying life insurance, your credit doesn’t affect the costs as directly – which is great news if your credit is less than perfect. In general, the factors that affect the cost of your life insurance are much more flexible than with other types of insurance. The insurance company assesses you from a more holistic standpoint to determine what type of policy you qualify for.
Your life insurance company may take a look at your credit score. However, they’ll make a soft inquiry as opposed to a hard inquiry, which means that the inquiry doesn’t have the potential to drive your credit score down. Your life insurance company may lower or raise your rate due to information in your credit report because it does indicate a history of financial responsibility (or lack thereof). The better your credit history, the less likely you are to skip out on a payment from their point of view.
However, if you don’t have great credit, don’t stress about your life insurance rates. They may go up slightly, but credit is just one thing in a long list of factors that insurance companies look at. For example, insurance companies will also look at your medical status, your work status, your driving history, and your criminal history. This gives them a general idea of how likely you are to pass away, statistically. Your insurance company will base your premiums on your risk factor overall.
How Your Credit Can Affect Your Premiums
When looking at your credit report, insurance companies don’t actually care about the number. However, they’ll look at bankruptcy or other financial events listed in your credit report. These are the things that could end up affecting your rates.
Although insurance companies will not factor in the exact number on your credit score, they will often look at something called your LexisNexis risk score. This is a composite score that looks at your credit score, driving record, and more and creates an overall rating of how risky you are to insurance companies. Not all life insurance companies use this, but many of them rely on it to make the screening process easier.
Life Insurance and Bankruptcy
The biggest way your credit could affect your life insurance premiums is if you have filed for bankruptcy in the last two years or so. This is a very common reason for insurance companies to deny someone a policy. While not all insurance companies will deny you outright, you can at least expect higher prices if you’ve had a bankruptcy in your financial history.
If you’ve experienced a bankruptcy in the past few years and you’re looking at purchasing life insurance, the first thing you should do is find an independent insurance advisor to help you navigate the market. They’re going to be aware of life insurance companies you may not have heard of that offer more lenient requirements for consumers.
In general, life insurance companies consider chapter 13 bankruptcy to be less severe than chapter 7. This is because there isn’t any asset liquidation involved with a chapter 13 bankruptcy. If your bankruptcy hasn’t been discharged yet, you may still be able to get coverage. You will have to show very strong proof of income and reasonable credit. If your bankruptcy has been discharged, you will typically need to wait a year or two before companies will offer you coverage (regardless of what kind of bankruptcy it is). However, past that point, the bankruptcy shouldn’t affect your ability to get life insurance other than a slight increase in premiums.
Ultimately, your credit isn’t much of a factor when it comes to your life insurance, so don’t stress if it’s less than perfect. Ultimately, it’s more important to make sure you are healthy and live a safe lifestyle, as that’s what’s most important when determining your life insurance premiums. Once you have your life insurance policies in place, make sure you make your payments on time to avoid any effect on your credit in the future.