How Credit History Affects Your Life Insurance Premium

It’s common practice to have your credit history pulled when you apply for car or home insurance, but now insurers are using the information to help put a price on your life insurance premium. Providers say there’s a connection between how you handle credit and the likelihood of an early death.

While your credit report isn’t as pertinent as your health or family medical history, it can give insight to your longevity, according to LIMRA research.

What Determines My Life Insurance Premium?

Insurers obtain a number of records to learn about you, your health risks, and lifestyle before determining your premium. Credit history is one of many elements that allow providers to predict your lifespan and habits. Other factors that play a role in your premium:

• Age

• Gender

• Health

• Hobbies

• Occupation

• Type of policy

Insurance providers want to gather as much data about you as possible to assess the risk in providing you a policy. With advanced tools that help providers predict risk, insurers hope to offer policies to more people without requiring extensive health exams.

How Do Insurers Use My Credit History?

LIMRA published a survey last year that revealed how providers utilize your credit history.

• 18 percent said applicants’ credit history was used

• 8 percent used a TransUnion generated credit-based score for life insurance applicants

• 28 percent used a risk predictor model from LexisNexis Risk Solutions that considered credit information

It’s only in the past 10 years that life insurance providers started looking to an applicant’s credit history to help determine risk. LIMRA reports the better a person’s credit, the less likely they are to file a claim.

While some states have banned the use of a credit report to determine car insurance rates (California, Hawaii, and Massachusetts), none have put a restriction on using it for life insurance.

What Does A Credit Report Determine?

Whether you’re applying for life insurance or considering a change to your policy, it’s important to know what’s on your credit report. Your rating determines if you’re eligible for loans, credit cards, or a mortgage, and plays a vital role in the loan rate.

There are a number of reasons to maintain good credit, including life insurance, but keep in mind your health, driving record, and drug use are bigger indicators of your risk of dying. Practicing healthy habits – eating, exercising, and getting regular health exams – will help clear the way to obtaining a life insurance policy that’s best for you. Keep in mind, if your health becomes better over time – you lose weight, your blood pressure is in check, you doctor stops your heart medication – you can contact your insurance agent or broker to inquire about a lower premium.

Your credit score is being checked by future employers, financial institutions, and now life insurance providers. The first step is knowing your score and checking your credit report for any fraudulent activity, after that, create a game plan to better your score (if needed) or continue to monitor it to prevent inaccurate information from damaging your rating.