Life Insurance: Credit Checks And Their Role

Life insurance companies are increasingly using credit checks as part of the application review process. While your credit score alone won't impact your life insurance premiums, a credit check could help speed up the review and make it easier and cheaper to get life insurance if you have good credit. A credit check will allow insurers to assess the risk of taking you on as a policyholder.

Credit checks are becoming more common in the life insurance application process

When a life insurance company checks your credit, they are looking for information about your financial history. For example, a bankruptcy filing in your credit report could impact your ability to be approved for a policy and its cost. Insurers may also be looking for red flags that indicate you are a financial risk, such as large credit card balances, a high percentage of credit card usage, or late or missing debt payments.

It's important to note that your credit score itself does not directly affect your life insurance premiums. Instead, it is the contents of your credit report, such as past bankruptcies, late payments, and unmanaged debt, that can lead to higher premiums. This is because insurers use this information to assess your suitability for a policy and assign you an insurance score based on your income, debts, insurance history, and driving history.

While your credit may only be one of many factors that insurers consider, it is still important to keep your credit score and financial history in good standing. This can help ensure that you get the best possible rates on your life insurance policy and other financial products.

Credit-based insurance scores are calculated differently to credit scores

Credit-based insurance scores and credit scores are calculated differently. While both scores are based on similar factors, they are weighted differently. This is because a credit score is meant to estimate the likelihood that you will pay off your debts, whereas a credit-based insurance score looks at how likely it is that you will file an insurance claim.

Credit-based insurance scores are calculated based on the following factors:

• Payment history (40%)—How well you have made payments on your outstanding debt in the past.
• Outstanding debt (30%)—How much debt you currently have.
• Credit history length (15%)—How long you have had a line of credit.
• Pursuit of new credit (10%)—If you have applied for new lines of credit recently.
• Credit mix (5%)—The types of credit you have (credit card, mortgage, auto loans, etc.).

It's important to note that personal information such as race, colour, national origin, income, occupation, employment history, location of residence, and certain types of inquiries on your credit report are not considered when calculating your credit-based insurance score.

Additionally, credit-based insurance scores are created by different companies, such as FICO, LexisNexis, and TransUnion, and these companies may weigh the factors differently. For example, FICO and LexisNexis might differ in how they weigh payment history or outstanding debt. Therefore, your credit-based insurance score may vary depending on which company's model is used.

While your credit score may be an indicator of your credit-based insurance score, it is not the same. Your credit score is based solely on your credit report, while your credit-based insurance score takes into account other factors specific to the insurance industry.

A credit check for life insurance will not impact your credit score

Life insurance companies are increasingly using credit checks as part of the application review process. A credit check can help speed up the review and make it easier and cheaper to get life insurance, especially if the applicant has good credit. However, even if an applicant has poor credit, their credit history is only one of many factors that the insurance company takes into account.

When a life insurance company checks an applicant's credit, it may be looking for particular information from within their credit history. For example, a bankruptcy filing in a credit report could impact the applicant's ability to be approved for a policy and its cost. The company may also receive a credit-based insurance score that attempts to predict the likelihood that the applicant will miss a premium payment. It can use the score to help determine if it should issue a policy and how much to charge in premiums.

Credit-based insurance scores are calculated based on five factors:

• Payment history (40%) — including the timeliness and accuracy of past debt payments
• Outstanding debt (30%) — the total debt currently held by the applicant
• Credit history length (15%) — the length of time the applicant has held a line of credit
• Pursuit of new credit (10%) — whether the applicant has recently applied for new lines of credit
• Credit mix (5%) — the different types of credit held by the applicant, such as auto loans, credit cards, and mortgages

Despite the above, a credit check for life insurance will not impact an applicant's credit score. Unlike a hard inquiry credit check that can occur when someone applies for a credit card or loan, an insurance credit check will be recorded as a soft inquiry, which does not affect credit scores. Soft inquiries are only visible on credit reports pulled by the applicant themselves and are not viewable by lenders or creditors. Therefore, applicants can shop around to find the best life insurance rate without affecting their credit score.

Credit checks can speed up the application process and make it cheaper

Life insurance companies are increasingly using credit checks as part of the application review process. A credit check can speed up the application process and make it cheaper for those with good credit.

Credit scores help life insurance companies predict the risk of doing business with you. A good credit score means you are likely a lower financial risk customer, while a bad credit score means you could be a higher-financial risk customer. Credit scores range between 300 and 850, with 800-850 being an exceptional score.

When a life insurance company checks your credit, it may be looking for particular information from within your credit history. For example, a bankruptcy filing in your credit report could impact your ability to be approved for a policy and its cost.

The use of a credit check, along with other data that can be quickly gathered and reviewed, is one way insurance companies are trying to automate and accelerate underwriting. Depending on what the automated process determines, applicants may be able to get approved with limited (or no) medical exams. As a result, it can be easier for more people to quickly qualify for life insurance with lower premiums.

A credit check can also make it easier to get approved for life insurance without a medical exam, and may lead to paying less for your policy.

However, it's important to note that even if you have poor credit, your credit will only be one of many factors that the insurance company considers. Other factors that influence your life insurance costs include age, sex, health history, family medical history, hobbies, work, driving and criminal records, and the policy details.

Credit checks are used to predict the likelihood of future premium payments

Credit checks are becoming increasingly common in the life insurance application process. While a credit check can speed up the application process and make it easier to obtain life insurance, it is not the only factor that insurance companies consider. Credit-based insurance scores are calculated differently from credit scores used by lenders and are used to predict the likelihood of future premium payments.

Credit-based insurance scores are calculated using a mix of information from a credit report and other data sources. For example, a bankruptcy filing in your credit report could impact your ability to be approved for a policy and its cost. Credit attributes such as this are reviewed during the underwriting process to determine whether additional information is needed. While a credit check could impact your life insurance underwriting process and premiums, other factors such as age, sex, health history, family medical history, hobbies, work, driving record, and criminal record are also taken into account.

Credit scores are calculated based on several factors, including payment history, credit age, mix of accounts, and credit inquiries. Making payments on time is the most important aspect, followed by debt usage, credit age, mix of accounts, and credit inquiries. A higher credit score indicates lower financial risk and can lead to lower interest rates and better access to financial products.

While a credit score alone may not be a determining factor for life insurance, certain red flags within the credit report, such as large credit card balances, high credit card usage, and late or missing debt payments, can suggest financial risk to the insurer. These red flags, combined with other factors such as driving record and previous insurance history, can lead to increased premiums. Therefore, maintaining a good credit score and managing finances effectively can help streamline the process of obtaining life insurance and result in lower premium costs.

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