If you’re buying life insurance, you might be wondering if your credit score has an impact on eligibility. The short answer is, while your credit score doesn’t directly affect your premiums, the contents of your credit report can have an indirect impact on the life insurance underwriting process.
We’ll dive into the ins and outs of credit scores, life insurance premiums, and what you can do to lower your premiums.
Your Credit Score Is Not a Primary Factor in Life Insurance Eligibility
When it comes to life insurance underwriting, your credit score is not usually the primary factor insurers consider. Rather, life insurance companies primarily look at bankruptcy and other details found on your credit report.
Some of the most important factors considered include:
- Your repayment history
- The amount of debt you’ve accrued
- Any negative marks on your credit report, including bankruptcies or liens
- Any recent inquiries into your credit report
This information helps insurers determine how likely it is that you will make your premium payments on time and in full. Insurers also use the information to determine how much risk you represent.
Insurance companies consider accounts in collections and other openly delinquent accounts to determine how great of a risk you are to insure, so keep an eye on what’s being reported.
The Danger of Collections and Debts
If you have a collection account or other debt that is negatively affecting your credit score, it can make it more difficult to secure life insurance. This is especially true if the debt has been turned over to collections and remains unpaid for an extended length of time.
Insurers view delinquent accounts as a sign of financial instability, which could result in higher premiums or even a decline in coverage. Keeping up with regular payments and checking your credit report periodically is always a smart idea.
Understanding this may give you some peace of mind when applying for life insurance coverage. However, in order to lower life insurance premiums, it is important to maintain or improve the content of your credit report.
In other words, taking steps such as paying other bills on time and avoiding excessive debt can lead to a more affordable life insurance policy.
How to Keep Life Insurance Premiums Low
Life insurance is essential to protect your family’s financial and emotional future. While placing items in the casket can aid with grief, you can’t retroactively buy life insurance.
That can be hard however because monthly premiums can sometimes be expensive. Fortunately, there are some simple steps you can take to help keep costs down.
- Shop around for the best rate by comparing policies from different companies.
- Make sure to keep your health information up-to-date as this affects rates significantly.
- Consider changing the coverage amount if you find it no longer meets your needs. Reducing the amount of coverage usually leads to a lower premium cost.
- Opt for an annual or semi-annual payment plan instead of a monthly one. Generally, these plans come with discounts that can really add up over time.
In addition, if you haven’t considered working with a life insurance broker, now is the time to do so. A life insurance broker can provide you with invaluable advice on the best policy for your needs, as well as help you identify cost-saving opportunities.
Following these tips will certainly help you get the best life insurance policy with premiums that fit within your budget.
Tips for Improving Your Credit Score
Improving your credit score doesn’t have to be a difficult process. By following just a few simple steps, you can quickly see your rating climb.
The number one tip for improving your credit score is to always pay bills on time – late payments are a surefire way of dragging it down. Equally important is keeping balances low: High balances are seen as risky by credit companies and will also negatively affect your score.
Finally, use credit responsibly: Creating too many lines of credit can also drag down the amount lenders are willing to extend you and increase how much interest they will charge. Adopting these strategies can help you make real progress in boosting your score.
Improving Your Credit Score Will Save You Money in the Long Run
Having a good credit score is essential if you ever want to make any big purchases, as it affects how much interest you’ll be charged when borrowing money. Improving your credit score may seem like a daunting prospect, but the effort will pay off in the long run.
While a credit score doesn’t directly affect the cost of your life insurance premiums, it can help you save money in dozens of other ways. Your credit score directly affects the pricing and terms of things like:
- Mortgage loans
- Auto loans
- Personal loans
- Credit cards
By taking steps to improve your credit score now, you could save a lot of money in the long run. When a lender sees a bad credit score this typically means a higher interest rate, that interest rate means unnecessary dollars going to the lender.
For example, a person with a higher interest rate on their loan may pay tens of thousands of dollars more over the life of that loan. If they had taken steps to improve their credit score before applying for the loan, they could have saved themselves a lot of money.
So, if you take the time to improve your credit score now you could be reaping the rewards of lower interest rates and potentially reducing the cost of life insurance premiums as well. Investing time in improving your credit score is an investment that will save you money in the future.
Securing a Life Insurance Policy
Life insurance is necessary for many and a financial lifesaver for the families of policyholders in the event of their death. Whether it’s expected or a wrongful death occurs, life insurance is an invaluable lifeline.
In addition, knowing how to keep life insurance premiums low can be beneficial for your pocketbook and peace of mind.
Even if your credit score isn’t a primary factor in determining eligibility, bankruptcies and other items on your credit report can still affect what you pay.
Fortunately, improving your credit score is achievable by taking small steps like paying bills on time, keeping balances low, and using credit responsibly. Taking these precautions will save you money in the long run.
