Life insurance is one of those things that most people can’t afford to skip out on. It’s good to have a policy if you want to ensure that your loved ones are provided for financially. Along with your health history, insurers may also take a look at your credit history. While a low credit score won’t necessarily keep you from getting life insurance, it might indirectly affect how much you pay for your premiums. Before you apply for a life insurance policy, it’s a good idea to take a look at how bad credit can influence the final cost of insurance.
Find out now: How much life insurance do I need?
What Insurers Look For
Your credit history can give insurers a snapshot of how well you’ve managed your finances. Insurance companies tend to look out for red flags that might indicate that you’re too much of a risk to insure.
If you’re deep in debt or you’ve missed several credit card payments, for example, that could signal that you’re not keeping a tight grip on your finances. In many cases, bad credit won’t hurt your chances of qualifying for life insurance. But an insurer may have doubts about whether you’ll be able to keep up with your premium payments.
Getting Life Insurance With Serious Delinquencies
Your credit score is based on a number of different factors and certain things carry more weight than others. Your payment history, for instance, makes up 35% of your FICO credit score, which is the most widely used consumer credit scoring model.
While late payments can be detrimental to your score, some things – such as charge-offs, accounts in collection status, bankruptcy and foreclosure – can do even more damage. If you have any of these delinquencies on your credit report, it can have a significant impact on the rate class you fall into.
For example, someone with a credit score that’s in the 750 to 850 range may be offered a preferred or elite status rating that could translate to the lowest life insurance premiums. On the other hand, if you’ve got a 620 credit score because you filed Chapter 7 bankruptcy a few years back, you might only be eligible for a standard rate. That could mean a difference of hundreds of dollars per year in insurance premiums.
When Bad Credit Can Result in a Denial for Insurance
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.
The best thing you can do in that scenario is work on reestablishing a positive repayment history. With a Chapter 7 bankruptcy, you’ll probably need to wait and apply for insurance after your case has been discharged. If you’re completing a repayment plan under a Chapter 13 bankruptcy filing, you’ll probably need to wait and apply for insurance after you’ve made some progress toward repaying your debts.
Related Article: Top 5 Tips for Fixing Bad Credit After Bankruptcy
Check Your Report Carefully for Errors
Sometimes bad credit is the result of errors on your report, rather than poor money choices. Before you start shopping around for a life insurance policy, it’s best to take a look at each of your credit reports from the three major credit bureaus to see if there are any inaccuracies. If something jumps out that looks incorrect, initiating a dispute with the bureau that reported the information can help you clear it up, and that may raise your score.
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