How Bad Credit Can Affect Your Life Insurance Premiums
There seems to be a lot of confusion that surrounds bad credit and life insurance premiums. Some people say that your credit report will have no impact on your premiums. Others claim that your financial history will influence how much you pay.
What’s the truth?
Here’s what you need to know: Your credit score — the actual number that appears on your credit report — will have no impact on your life insurance premiums. The bad news, however, is that some of the information on your report could influence how much you pay for your insurance.
Read on to find out more.
Why Do Life Insurance Providers Check Your Credit?
After all, you’re not asking for a loan or mortgage. In fact, you’re not going to receive any cash from a life insurance provider when you make your application. So, why does your credit report even matter?
Well, life insurance providers check your credit report so they can have a look at your financial history and personal information — previous credit agreements you’ve had in the past, for example. This helps them calculate how likely it is you will make payments for your insurance in the future. Like any type of insurance, it’s all about risk. Insurance providers prefer people who are “low risk” as they are less likely to owe them money.
What Do Life Insurance Providers Check on Your Credit Report?
There are some things that providers check on your credit report, but there are other things they can’t see at all. Life insurance providers don’t know how many times you’ve checked your credit report in the past, for example.
Life insurance providers are only allowed to look at the information on your credit report that will help them make a decision about your application for insurance. They can then compare this information with the details you’ve included on your application.
Here’s an example:
Say you enter your age as 47 on your application for life insurance. Life insurance providers will check this information with your age on your credit report and contact you if there is a discrepancy.
The same goes for your name. And your address. And your job.
This is merely to mitigate risk. If you are found lying on your application for life insurance, you might have your premiums increased or have your application rejected.
Companies will also look for information that might influence whether you make payments for your insurance. If you have had poor credit in the recent past, this might impact your decision-making skills and increase the chances of you not paying your premiums. Every provider has different policies though, and it doesn’t mean you won’t be accepted for life insurance just because you have had financial difficulties in the past.
Are Poor Credit and Unhealthy Lifestyles Linked?
Another reason why life insurance providers might look at your credit report is to determine whether your previous financial decisions reveal information about your lifestyle.
Some people think that people with poor credit are more likely to experience stress, and research shows that stress can bring on a whole heap of medical conditions. In the worst-case scenario, stress can even trigger an early death, which will likely result in a life insurance claim from a member of your family. This is why some providers might check previous credit applications with other lenders, debts, and bankruptcies.
Again, every provider is different, and many companies won’t even take these things into consideration. After all, it can be impossible to determine whether poor credit impacts your health.
Can You Refuse to Share Your Credit Information With a Life Insurance Provider?
Unfortunately, most life insurance companies will ask to see your credit report in order to process your application. You can refuse to share this information, of course, but expect the lender to terminate your application, too.
What If Your Credit Report is Wrong?
If you believe there are inconsistencies on your credit report, you need to contact the company who left this information on your report, as well as the credit reporting agency. Making changes to your credit file can be a long process, however, and it will likely delay your application for life insurance.
What Can You Do About Poor Credit?
If you want to increase the chances of being accepted for life insurance or lower your life insurance premiums, it’s a good idea to pay off any old debts. This proves that to prospective lenders that you are in a good financial position and will likely make insurance payments in the future.
If you have old debts on your file, you might want to wait a while until you apply for life insurance. The longer your debts appear on your credit file, the less important they appear to lenders.
Remember, your credit score will not influence your application for life insurance whatsoever. However, some of the information on your report might. This information might reveal information about your lifestyle that suggests you might not make payments for insurance in the future.