If you’re getting ready to purchase life insurance or want to switch your policy, it’s useful to know which factors insurers assess when offering you coverage and your premium price. Insurers who leverage insurtech for their underwriting process are increasingly utilizing your credit health and credit-based insurance score to make risk assessments, often in lieu of medical exams and other time-consuming tests. Find out more about how your credit can affect your life insurance premium.
Do Life Insurers Check Your Credit?
It depends, but the answer here is increasingly “yes” as insurtech allows policy providers to streamline the underwriting process. Insurers that allow applicants to skip medical or health exams as part of the underwriting process especially rely on credit checks to determine risk.
This means if you have great credit, you may get approved without a medical exam or other markers that insurers traditionally rely on to assess and mitigate risk.
What is a Credit-Based Insurance Score?
Insurers use something called your credit-based insurance score as part of your risk assessment. This differs from your credit score. While a credit-based insurance score is based on some of the same factors as your credit score, it is calculated differently and by different institutions.
Your credit-based score traditionally is broken down by the following factors:
- Payment history
- Outstanding debt
- Credit history length
- Pursuit of new credit
- Credit mix
While many of these same factors determine your credit score, the weighted average differs. Your credit-based insurance score is not based on personal information — in fact, raters aren’t allowed to use factors like your gender or marital status to determine this.
Also, not every state allows insurance providers to use credit-based insurance scores. Some do, some only allow it for certain types of insurance (like car insurance) and some don’t allow it at all.
Be familiar with your state laws to know what factors will determine your life insurance premium before you start shopping around.
Other Factor That Affect Your Life Insurance Score
There is a standard set of factors that most insurance underwriters will take a look at when deciding what coverage you’re eligible for and your premium. While this isn’t an exhaustive list and many insurers are now leveraging insurtech to streamline their underwriting process, here are the basic factors providers look at:
- Health history/medical exam
- Smoking habits
- Family health history
- What type of policy you’re getting
How to Raise Your Insurance-Based Credit Score
If you’re worried that a poor credit score may affect your ability to get affordable life insurance coverage, or you want to make sure you’re in good shape to apply for a no medical exam life insurance policy, there are many small steps you can take now to start boosting your credit standing.
Some tried-and-true methods include:
Always make payments on time. Or, ask for help from your credit issuer if you can’t. Payment history is a huge part of any credit assessment. Making payments on time shows credit raters and insurers alike that you are at low risk for not making payments as agreed upon.
Pay down debt. How much debt you’re carrying versus your credit limit determines your credit utilization rate. Keeping this rate low is key to good credit. Making an extra payment or 2 within a certain time range (so long as it doesn’t cause you to miss other payments) can boost your score quickly.
Track your credit regularly. Credit can seem intimidating, but keeping up to date on your score and which actions you can take to see improvements is the best way to keep your credit healthy.
Don’t close accounts. This may seem counterintuitive, but don’t close your accounts if possible once you’ve paid your balance down to $0. Not only does the average length of time your accounts have been open help determine credit scores, there’s a sweet spot as far as how many creditors you have a relationship with. Having more relationships in good standing can be helpful, especially if you have low or no balance on these accounts.
Can You Be Denied Life Insurance Because of Credit?
This depends. As stated before, some states restrict insurers, or certain types of insurers, from using your credit score to determine your coverage eligibility. But other providers may deny you if you have a ton of outstanding debt, accounts in poor standing or previous bankruptcies.
That being said, just because one insurer denies you doesn’t mean they all will. That’s why shopping around for quotes is so important. This will help you figure out your options and find the best price on your premium.
Protect Your Loved Ones With Life Insurance
No matter what your credit looks like, you want to ensure your family and loved ones are taken care of now and in the future. Get personalized coverage from Sproutt. Get started with a free quote today and find the best coverage for you and your family.