Life Insurance

Does Your Credit Score Affect Your Life Insurance Premium?

Your credit score may not impact your life insurance rate but your credit history can impact your rate or your ability to get a life insurance policy. It’s important to review your credit report regularly to correct any errors.

Editor's Note

You can trust the integrity of our balanced, independent financial advice. We may, however, receive compensation from the issuers of some products mentioned in this article. Opinions are the author's alone. This content has not been provided by, reviewed, approved or endorsed by any advertiser, unless otherwise noted below.

We all know how powerful our credit score can be. For example, it can determine your interest rates when you’re getting a credit card, buying or renting a home, getting a personal or car loan, and a lot more. But did you realize that it also can impact how much you pay for certain kinds of insurance?

Your credit score directly impacts your rate for insurance products such as homeowners insurance, renters insurance, and auto insurance. However, life insurance is a bit different, and it's not as clearly defined how your credit score plays a role in your rate.

We do know there are a number of factors that go into determining your life insurance rate. Your credit is just one of those factors. Many life insurance providers will make a soft inquiry into your credit report (which means your score won't be impacted) and the information on your report might be used when they decide whether to insure you and how much you will pay.

There are also a few other reports that life insurance providers will leverage when making a decision to insure you, which we'll cover in a bit more detail below. For this article, though, we will focus on if and how your current credit score may impact your life insurance premiums.

The Correlation Between Credit and Life Insurance

Remember that your actual credit score isn’t going to impact your life insurance rate. It’s the information on your credit report (such as bankruptcy) that could potentially impact your rates or even your ability to get life insurance.

For example, all insurers, including life insurance providers, have specific guidelines on bankruptcy. While guidelines vary, many life insurance companies have provisions that state you need to be clear of your bankruptcy for one to two years before you can purchase a policy.

Other life insurance providers may see a bankruptcy within two years as a significant risk, but not one high enough to deny you coverage, so they’ll give you a higher rate. Again, these are all just examples of how your credit MIGHT impact you.

What’s funny, though, is that while insurance companies don’t use your score directly, something like bankruptcy would certainly give you a low credit score or even decimate your credit score — so they are, indirectly, looking at your score.

What Other Reports are Used for Life Insurance?

While you may be concerned if you have bad credit, below are several other reports that life insurance companies can review when determining your life insurance rate.

Past Medical Records

This might seem like a total invasion of your privacy but remember you’re asking an organization to provide financial benefits if you die. So they need to know everything they can about you. A life insurance company can pull your past medical records and review any diagnoses and treatments you’ve received recently.

In addition, certain life insurers will want to go through your entire medical history if they see something concerning, so they might get records from all medical professionals you’ve seen.

History of Prescription Drug Usage

This one might come as a shock, as this is highly private information. But you’re effectively releasing those private records when you sign up for life insurance, and this is a big one. The prescription medication you’re prescribed and take can be a huge indicator of your overall health and life expectancy.

As such, insurance providers will want to see this to determine any alarming issues or trends that indicate you might be risky to insure. Many states already have a drug database that houses your prescription drug usage. On top of that, insurance companies can purchase data that shows your past prescription drug usage. And yes, it’s legal.

Medical Information Bureau Report

The Medical Information Bureau is a member-owned non-profit organization. Its “underwriting services are used exclusively by MIB’s member life and health insurance companies to assess an individual’s risk and eligibility during the underwriting of life, health, disability income, critical illness, and long-term care insurance policies.”

The MIB works to mitigate “the risk of applicant errors, omissions, and misrepresentations. MIB may help lower the cost of life and health insurance for consumers.”

Driving Record

If you have any tickets or car accidents on your record, it could indicate to your life insurance provider that you carry more risk to insure. Because of that, life insurance companies can review your motor vehicle report to see any red flags.

Criminal Record

Life insurance providers will also want to know if you have a past criminal history, another factor in your overall risk level. In most cases, having a minor criminal offense on your record won’t exclude you from getting life insurance.

The problem arises when you’re charged with a felony, are sentenced to serve, or are currently serving time in prison. If you’re charged with a felony, you will most likely have to wait until charges clear before you can get life insurance.

And if you’re sentenced to serve prison time, or you’re currently serving time, nearly all insurers can hold off on your application until you are out of prison for at least a year. Again, this is a drastic situation that I hope most of you aren’t dealing with, but it’s helpful to know that your criminal record does play a role.

LexisNexis

LexisNexis is a global company that provides both legal and business research. One of the products they offer is Risk Solutions, which uses an algorithm they created that allows insurance companies to develop a risk score. There are different data points included in the risk score: things like your driving history (if you can believe that), credit score, and public records help create a unique risk score for each individual.

Using Credit for Life Insurance Has Caused Some Stir

While insurance providers have pretty much always used your credit as a determining factor (especially for things like car insurance), it’s relatively new to the world of life insurance. Most life insurance providers have only been looking at consumers’ credit reports for about the past ten years.

But the use of credit for insurance purposes has been somewhat controversial. For example, a few states have put laws in place to make it illegal for insurance providers to use your credit history as a determining factor for auto insurance. However, no states have addressed credit being used for life insurance approvals.

Life insurance providers say they use your credit history differently than a lender does. But this can get sticky when you think about it. Insurers don’t need to use your credit report to know your income, but they can surmise that information by looking at loan balances, delinquencies, and more. And while your credit score isn’t technically a factor, the data on your credit report directly impacts your credit score, and unfortunately, there are no clear guidelines on this.

Tools like LexisNexis will pull in far more data than just your credit history, but you can see where this becomes controversial. In addition, things like your medical history and prescription drug history are reviewed–which I can see making sense for life insurance, but again, there are no guidelines.

Remember, Your Credit History is Only One Factor

Your credit profile is just one of many factors used to determine your life insurance eligibility and rate. As you can see from the list above, life insurance companies want a total picture – including your health records, criminal background, etc.

More and more insurance providers are using proprietary software and advanced algorithms (like LexisNexis does) to analyze data and determine your level of risk. It’s called predictive analytics, and it’s a massively growing field.

So the more data they have on you, the more they can “feed” their model. Machine learning gets smarter as it continues to analyze data over time. The short of it is, as insurers get better at using their data to predict risk, the more frequently they can offer life insurance policies at excellent rates without needing you to go through a medical exam.

This makes it easier for you as the consumer and easier and faster for insurance companies to sell policies.

Related: Best No Medical Exam Life Insurance

Bottom Line

This isn't designed to freak you out, but more so make you aware of how your data, particularly your credit history, is used as a determining factor for life insurance. If you're ever denied coverage or feel like your rate has been adjusted unjustly, contact the insurer directly to understand the exact reasons why.

Now that you know your credit history will have an (even minor) impact on your ability to get life insurance or get the best rate, it’s a smart move to make sure you are reviewing your credit regularly. If there are any inaccuracies or errors, make sure you’re disputing them. Everyone should get a copy of their credit report and check it at least once a year (and it’s free).


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