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Life insurance companies are increasingly using credit checks as part of the application review process. A credit check could help speed up the review and make it easier (and cheaper) to get life insurance if you have good credit. But, even if you have poor credit, your credit will only be one of many factors that the insurance company considers.
Difference Between Credit-Based Insurance Scores and Credit Scores Used by Lenders
When you apply for a new loan or credit card, a creditor may pull your credit and review a credit score based on your credit report. The scores that FICO® and VantageScore® develop generally range from 300 to 850 and are intended to predict the likelihood that someone will fall 90 days past due on a bill within the next 24 months.
Insurance companies—including life, home and auto insurers—may also pull your credit and get a credit score when you apply for insurance. However, these credit-based insurance scores have a different purpose and score range than other types of credit scores. They also consider the information from your credit report differently, and some are even based on a mix of information from a credit report and other data sources.
Additionally, some states restrict or limit how insurance companies can use consumers' credit information. However, these restrictions generally only apply to home and auto insurance.
Do Life Insurers Check Your Credit?
Traditionally, not many life insurance companies used a credit check when evaluating potential new customers. However, the traditional underwriting process—which can involve medical exams and waiting for test results—may take a long time. While no-exam policies are available, they may only be offered to healthy and low-risk people, or could be more expensive than a policy that requires an exam.
The use of a credit check, along with other data that can be quickly gathered and reviewed, is one way insurance companies are trying to automate and accelerate underwriting. Depending on what the automated process determines, applicants may be able to get approved with limited (or no) medical exams. As a result, it can be easier for more people to quickly qualify for life insurance with lower premiums.
LIMRA, a global trade association for life insurance companies, and Munich Re, a German insurance company, conducted surveys of insurance companies' accelerated underwriting programs. They found the use of credit records grew from 18% of companies in 2017 to 49% in 2019. A separate Munich Re Life US survey of 28 insurance companies in late 2018 found that over 90% of the companies are either using or considering using credit-based scoring during underwriting.
When a life insurance company checks your credit, it may be looking for particular information from within your credit history. For example, a bankruptcy filing in your credit report could impact your ability to be approved for a policy and its cost.
Or, the company may receive a credit-based insurance score that attempts to predict the likelihood that someone will miss a premium payment. It can use the score to help determine if it should require a medical exam, issue a policy and how much to charge in premiums.
What Else Influences Your Life Insurance Costs?
While a credit check could impact your life insurance underwriting process and premiums, other factors will likely have a larger influence on your costs. Because life insurance pays out when someone dies, these factors tend to be centered around a person's health and the risks they take. They can include:
- Age and sex: Someone who is younger may be less likely to die soon, and women tend to live longer than men.
- Health history: Your physical and mental health history, along with your current or past prescription drug use, can impact your cost.
- Family medical history: Similarly, if your family has a history of certain illnesses or hereditary diseases, that may increase your cost.
- Hobbies and work: Regular tobacco use or risky hobbies, such as rock climbing, can lead to higher premiums. Your job can also impact your cost, because working in an office is less dangerous than being a construction worker.
- Driving and criminal records: A history of car accidents or a criminal record may indicate risky behavior that could make life insurance more expensive.
- The policy: A longer-term policy with a higher benefit amount will be more expensive than a shorter-term policy with a low benefit.
This information is not included in a credit report or credit score. Life insurance companies collect it from a variety of sources, including what you share on your application, your medical records and (potentially) a medical exam. Companies also purchase information from consumer reporting companies.
For example, MIB Inc. creates MIB consumer reports with consumers' medical conditions and hazardous hobbies. And Milliman IntelliScript offers consumer reports with histories of consumers' prescription drug purchases.
Similar to consumer credit bureaus, federal law may allow you to request a free copy of your consumer report (if one is available) from these companies at least once every 12 months. The Consumer Financial Protection Bureau (CFPB) has a list of consumer reporting companies, along with their contact information.
Will an Insurance Credit Check Impact Your Credit Score?
Unlike a hard inquiry credit check that can occur when you apply for a credit card or loan, an insurance credit check will never hurt your credit scores.
If an insurance company checks your credit report or purchases a credit-based insurance score as part of its application review process, it will be recorded as a soft inquiry. Soft inquiries aren't used to calculate FICO® and VantageScore credit scores.
Good Credit Can Make Getting Life Insurance Easier
While your credit is only one small piece of the puzzle, having good credit could make it easier to get approved for life insurance without a medical exam, and may lead to paying less for your policy. If you want to check your credit, you can get a free credit report from Experian. You'll also get free credit monitoring with notifications of potentially suspicious changes, and can quickly dispute inaccuracies in your credit report using the online Dispute Center.