Insurance and credit score – How are they related?

If you want to get a good rate on your relevant life insurance, then that would depend upon a number of factors. You will be surprised to know that your credit score is one of them. Many a times you wonder whether your credit score has any significant influence on your rate of premium that you will be getting for your life insurance. The reality is that there is a significant influence and thus you should monitor your debt situation closely as this not only increases your interest rate on new loans but also premium rates on different insurances. In case if you have a low credit score it does not imply that you won’t be able to get a life insurance it means that the premium rates you need to pay are substantially higher than if you had high credit score.

The reason most insurance companies look for your credit score before giving you a premium rate is that they factor the components of your credit score into the cost of your insurance policy. This is because your responsibility and your payment habits can be gauged from your credit score. If you have some unpaid bills or financial obligations that you have missed, then you can expect an increase in the cost of the premiums of your life insurance. This is because missed payments and bad financial records translate into low credit scores which in turn generates a higher premium for you.

It might seem to you that basing the rate of your premium on your credit scores is unfair, however there is a sound logic behind it. The insurers generally consider that if a person is irresponsible when it comes to matters of managing money, then he will be irresponsible in other matters too. Thus

You may think giving higher premium rates on life insurance for a person with a bad credit score is unfair. But using the insurers’ logic, a person who is irresponsible with money management might also be irresponsible in other fields of life, and therefore has a higher insurance risk. Because of this higher risk, people with low scores are more likely to file insurance claims than those with high credit scores. The problem is that with the ongoing financial crisis in the nation, there are a number of people who are facing severe financial downturns. This is making their credit reports have bad records and thus a drop in credit score. The good news is that if you can explain your financial problems with respect to the financial crisis, then you may get a special dispensation which will be formalized by the company.

Since there are different evaluation criteria of credit scores by different insurance companies, some might offer you quite good premium rates per month even with not so stellar credit score. Hence, when searching for a life insurance policy for yourself, don’t get deterred by your bad credit report. Try and repair your credit so that you can get better premium rates.

Insurance and credit score – How are they related?