Know the Connection between Your Credit History and Life Insurance Premium

Know the Connection between Your Credit History (Credit report and credit score) and Life Insurance Premium

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Credit report and credit score are the two of the most vital aspects of your financial health. This is a well-known saying quoted by Erin Lowry that reflects the importance of credit score when taking any financial decision regarding buying insurance or making an investment. In real terms, your credit score acts as the reflection of your assets, liabilities, and capabilities. Hence, this becomes a significant tool for insurance companies to predict the best possible life insurance policy for any said person.

What is Credit Report and Credit Score?

The credit report is a display of one’s debt history that has all the details of a person concerning his or her payments, debt accounts, loans, and insurance policies. The credit score is a three-digit numerical representation that defines a connection between a person and his or her credit. The score is generated based on the credit history of a person keeping in the loop all the financial handling of that specified person.

Data Evaluation by Insurance Companies

Recent research done by LIMRA in the year 2017 reveals that most of the insurance companies use the credit factors like credit report or credit scores or both to insure the life of any potential client. LIMRA is a global research organization for financial services and life insurance companies to help them understand the credit factors of different individuals and accordingly support their marketing and distribution with a high degree of effectiveness.

As per the data evaluated:

  • Almost 18% of the insurance companies agree that they cross verify the credit records of an applicant before approving his or her life insurance policy. This report helps them to have an insight into their assets, debts and their frequency of payments.
  • Almost 28 % of the insurance companies use the predictive reports created by LexisNexis Risk Solutions, a data-driven analytics company working as an intelligence agency for government and various organizations. The company keeps an extensive record of all the insurance a person has purchased along with all his or her debts, claims and liabilities.
  • Almost 8% of the insurance companies use the credit score generated by TransUnion for all the applicants. TransUnion is a credit report agency that provides the credit score to an individual.

Further to this, the LexisNexis tool also provides an insight of the driving and public records concerning drug history, medical history, bankruptcies, and criminal histories. This record further takes to the decision of whether an applicant needs to go for a medical exam or not. If a medical exam is required, the process takes longer, the policy is defined accordingly, and if no medical review is needed, then an immediate coverage is provided to the applicant.

After sourcing all the information from various resources and data-driven organizations, insurance companies go further with in-depth analysis and judgment of how fair would it be to approve the insurance policy of a specified application. They also keep an assurance that most of them get their life insurance with their most fruitful coverage options and returns. They understand and judge the connection between debts and payment before making any final decision for approving any insurance policy. As per their understandings, the better the credit, the less likely the customer is to file any claim.