Does your credit score matter for life insurance? (2024)

Does your credit score matter for life insurance?

Your credit score doesn't have a direct effect on your life insurance premiums. However, when you apply for life insurance, insurers will do a soft inquiry of your credit report and the same factors that hurt your credit score can also hurt your options for life insurance coverage.

Some insurance companies may use your credit history to assign an insurance score, which plays a part in determining your overall risk rating. This risk rating, along with other factors, can ultimately affect your premium and ability to purchase insurance.

Can my credit score affect my life insurance or auto insurance rates/premium? Yes, indirectly. Most insurance companies will not reject applications for insurance based only on a low credit-based insurance score, but they may only offer that applicant a policy with a higher premium or higher monthly rate.

In some cases, having negative information on your credit report can cause an insurance company to deny your application for a policy outright, regardless of how healthy you are. If you're in the midst of bankruptcy proceeding, for instance, you might have a hard time getting an insurance company to offer you coverage.

California

Insurance companies in California don't use credit-based scores or your credit history for underwriting or rating auto policies, or setting rates for homeowners insurance. As a result, your credit won't impact your ability to get or renew a policy, or how much you pay in premiums.

When initially underwriting a life insurance policy, life insurance companies sometimes check up to 10 years of an applicant's medical records.

You already know your credit scores matter when you apply for a credit card, make a major purchase like a home or car, or apply for a loan. But did you know your credit history may impact your application for an apartment or a job? Here are 4 ways your credit history and credit scores can play a role in everyday life.

Get Life Insurance to Protect Loved Ones From Debt

Life insurance can replace the income you provide to your family. It can also ensure they don't go into debt paying off your debt. The sooner you purchase life insurance, the cheaper it is.

Medical conditions such as diabetes, high blood pressure or heart disease may disqualify you from coverage if your illness is life-threatening. If you've had cancer or are currently undergoing cancer treatment, your life insurance application may be denied until you've been in remission a certain number of years.

Most insurance companies say a reasonable amount for life insurance is at least 10 times the amount of annual salary. If you multiply an annual salary of $50,000 by 10, for instance, you'd opt for $500,000 in coverage.

What disqualifies you from getting life insurance?

People are typically denied life insurance because they fall into a high-risk category. This is often due to health challenges like diabetes, obesity or a previous diagnosis of serious disease. There are also nonhealth reasons for being denied life insurance.

Life insurance may not pay out if the policy expires, premiums aren't paid, or there are false statements on the application. Other reasons include death from illegal activities, suicide, or homicide, with insurers investigating claims thoroughly.

For example, applicants might lie about their age, income, weight, medical conditions, family medical history or occupation. It's also relatively common for applicants to lie about their alcohol or drug use.

Most major car insurance companies like GEICO, Progressive and State Farm factor in your credit score when giving you a quote. However, if you live in California, Hawaii, Massachusetts, or Michigan, you're in luck—these states don't allow credit history to affect your auto insurance rates.

When you request auto insurance quotes, some providers ask for your Social Security number. In states that allow it, providers use your Social Security number to review your credit report and determine your credit-based insurance score. It's one of the factors insurers in most states use to determine your premiums.

There are some differences around how the various data elements on a credit report factor into the score calculations. Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.

But the life insurance company will commonly set an expectation of 4 to 6 weeks. The higher the coverage requested, the longer the life insurance underwriting process may take.

Do You Need Proof of Income for Life Insurance? In general, you should expect to provide income information as part of your life insurance application. Insurance companies review your financial information as part of an overall risk assessment.

What is a bad credit score?

A poor FICO credit score might be considered less than 580. A poor VantageScore credit score might be 600 or less, with very poor scores being 499 or less. It's possible to improve a bad credit score by using credit responsibly. That means doing things like paying bills on time and reducing overall debt.

Bottom line. Nearly every facet of your financial life is impacted by the strength of your credit score, from loan and mortgage applications, and even something as essential as a lease on a new apartment.

Even though your credit score won't directly affect your life insurance application, certain details from your credit report can indicate that you might be a financial risk to your provider, such as: Bankruptcy. Carrying large credit card balances. High percentage of credit card use.

Creditors typically can't go after certain assets like your retirement accounts, living trusts or life insurance death benefits to pay off debts. These assets go to the named beneficiaries and aren't part of the probate process that settles your estate.

Any permanent life insurance policy with a cash value can be used to invest — but for most people, it isn't the best strategy due to high costs and low returns. Buying a term life policy and contributing to a 401(k) or IRA account is often a better option.