Q

Does your credit score affect your life insurance premium?

A

Your credit score doesn’t impact your premiums, but providers assign you an insurance score based on your financial history, which can affect what you pay.

Amanda Shih author photo

Updated October 7, 2020|4 min read

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Editorial disclosure

Your credit score itself doesn’t affect how much you pay for life insurance, but other information in your credit report, like past bankruptcies, will. Most life insurance companies make a soft inquiry of your credit report and assign you an insurance score based on your income and debts, insurance history, and driving history, which will impact your final premiums. You can’t look up your insurance score, but if you’ve filed for bankruptcy, regularly miss credit card payments, or have a history of driving violations, you could face higher premiums or application rejections.

KEY TAKEAWAYS

  • Insurers judge the factors that contribute to your credit score, not the specific number

  • Behaviors that lower your credit score, like missing credit card payments, could lead to more expensive life insurance

  • If you have a bankruptcy on your record, you’ll pay higher premiums or need to wait 12-24 months after its discharge to apply for a policy

  • Underwriters weigh your finances alongside your health and other risk factors to determine your final premiums

How your credit impacts your life insurance

Even though your credit score won’t directly affect your life insurance application, certain details from your credit report can be red flags. For example, all insurers have rules about bankruptcy, and many require that any bankruptcy be discharged for 12-24 months before you can purchase a policy at all. Others may see former bankruptcies on your report and offer you a less favorable premium.

Credit report information influences your insurance score (sometimes called a credit-based insurance score). Each insurer generates insurance scores differently, and you can’t look up your insurance score like you can a credit score. Generally speaking, you’ll have a better insurance score if you pay any loans on time, don’t carry large balances on your credit cards, and have a lengthy credit history. If you have bankruptcies on your report or a more complex credit history, an independent insurance agent or broker can find an insurance company more likely to offer affordable premiums to someone with your specific profile.

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Other reports that impact your life insurance

Your credit report and insurance score are just two of the many factors that influence your life insurance premiums. Life insurance companies want to determine the overall risk of insuring you — i.e., how likely you are to die while your policy is active — and also look at LexisNexis risk scores, medical reports, and your motor vehicle report to make that determination and set your premiums.

Medical Information Bureau (MIB) report

The MIB serves as a clearinghouse for information about your recent life insurance applications, and your MIB report will have details about any past life insurance applications you’ve filed, including any existing diagnoses and previous insurance applications you’ve submitted.

Insurers use this report to confirm information you share about your health during underwriting and look for red flags like previous insurance applications that were denied due to fraud. If you’ve applied for insurance before you can request a copy of your MIB report.

Prescription drug history

The medicines you take, as well as the dosage and length of use, give insurers information about your past and present health conditions and their severity. Many states have a prescription drug database of some sort, and insurers can also buy aggregate data on your prescription drug use from third-party data brokers like IntelliScript and MedPoint.

Medical records

In addition to attending physician statements (APS), which are statements from your current doctors about any medical treatments or diagnoses you currently have, the insurance underwriters may also request medical records from any doctors you’ve ever seen. This helps them gather more information about a specific condition you have, including its severity and related treatment history.

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Motor vehicle report

Driving accidents and tickets are a big warning sign to insurers that you may be a higher-risk applicant, so underwriters check your motor vehicle report. Most insurers look at the last five years of your driving history, but some may look as far as 10 years back.

If you have DWIs or a recent history of reckless driving charges on your record, some insurers may refuse to offer you coverage at all. If you have multiple moving violations on your report, you won’t necessarily be denied coverage, but the insurer may increase your final premiums. Accidents and auto insurance claims may also affect your insurance score.

Criminal records

If you’re currently being charged with a felony, you will likely need to wait until charges are dismissed before you can apply for life insurance. If you’re convicted or serving time, most insurers will postpone the application until you’ve been out of jail or off probation or parole for at least 12 months. If you’ve been convicted of a misdemeanor or lesser violation, there shouldn’t be a waiting period before you apply for a policy. Anticipate being treated less favorably if you have multiple crimes on your record and expect to answer questions about any criminal history, including what crimes you committed and how recently they took place.

LexisNexis risk score

LexisNexis Risk Solutions aggregates public information about you that might raise concerns for an insurer, including major debts, criminal offenses, and bankruptcies. The company uses a proprietary algorithm to assign you a risk score based on that public data, also called a risk classifier. Insurers review that risk score for any details previous reports didn’t reveal and adjust your premiums based on the LexisNexis information as needed.

The particulars of your credit report and reports from several other agencies will impact how much you pay for a life insurance policy, even though your credit score itself doesn’t. In general, risky behavior — whether bodily or financial — leads to higher premiums, while predictable health, finances, and hobbies will earn you better pricing. If you think your financial history or any other factors could negatively impact your life insurance premiums, work with an independent broker who can match you with an insurer that will be friendlier to your situation.

FAQ:

Do life insurance companies check my credit score?

Providers will perform a soft credit check when you apply for a policy but will focus on the details of the credit report that contribute to your score, not the score itself. This financial information factors into an insurance score, which reflects the overall risk of insuring you.

Why do insurance companies want my credit report?

Insurers are looking for evidence that you’re financially reliable and aren’t likely to miss premium payments. They’ll look at your credit report to find out whether you typically pay your bills on time, carry large amounts of debt, or have any bankruptcies on your record — all signs of financial risk.

How is an insurance score calculated?

Every company calculates insurance scores using its own formula, so there is no way to know your score. Usually, the score reflects reporting that impacts your credit score, like payment history and length of credit history, and insurance history information, like previous claims. Higher scores mean you’re less risky to insure and will enjoy lower premiums, and vice versa.