A credit score is a crucial factor that helps lenders determine your creditworthiness and whether you qualify for a credit card or a loan. As per the CIBIL (Credit Information Bureau India Ltd), individuals’ credit scores range from 300 to 900. Those with 750 points or more are usually preferred by lenders since a higher credit score suggests a lower defaulting risk and vice versa.
This brings us to the question, can your credit score affect your chances of purchasing a life insurance policy? It most definitely does. The higher your credit score is, the larger the life cover you can purchase. In other words, if your credit score lies between 300 to 350, it shows a financially unstable lifestyle. Therefore, you would only be eligible to avail of a micro-insurance policy, a low-life cover plan. On the other hand, if your credit score lies above 750, the chances are that you can avail of a large term cover at meager premium rates. Here’s how your life insurance premium is likely to be affected by your credit score.
The Upsurge of Insurance Score
According to insurance experts, the cost of products such as life insurance is significantly affected by risks. This happens because an individual with a poor financial condition is more likely to default on paying the premiums than someone who earns a high income. Similarly, if a person has a history of making late payments or skipping payments altogether, he is more likely to default than others.
Therefore, your creditworthiness depicted by your credit score can tell a lot about your personality. Lately, insurance companies have come to realize this. As a result, they have begun to refer to the same when determining appropriate insurance premiums for the people who purchase insurance products. And thus, came into existence, insurance score.
Effect of Payment History and Health
If an individual has a history of missing out on making payments, it would suggest financial problems or the inability to make disciplined timely premium payments. Therefore, insurance companies may raise the premium costs of a life insurance policy for such individuals, assuming they are a riskier proportion than average. If you can no longer afford to pay your premiums as you age, you might want to consider selling your life insurance policy for cash to help pay for living expenses.
Another factor that could hamper your chances of getting a higher premium rate is a low credit score due to loan defaults. In case you have recently defaulted on a home or a personal loan, the chances are that your insurer would think that this took a toll on your health too.
One of the fundamental aspects that help determine your credit score is credit utilization. It is the ratio of the credit you use against the total available credit. Therefore, a high credit utilization could suggest irresponsible spending behavior on your part.
In other words, if the insurers have a reason to believe that you cannot handle your money well, it is also unlikely for you to take care of your health. Subsequently, having a high utilization ratio on your credit report can increase your life plan’s increased insurance premium rate.
Good Score May Equal Good Premium
It’s not difficult to imagine that if you pay your bills on time, use credit cards within limits, and manage multiple loans, and you will be more likely to have your life under control. With this logic, insurance companies may consider you as someone who would live longer than those who have a low credit score.
Manage Your Cashflow for a Better Insurance Quote
Having comprehensive insurance coverage can save you and your loved ones from all kinds of financial problems. Life insurance functions as a safety net for your family, should anything happen to you. Therefore, you need to start planning early and choose a plan that offers the best policy benefits at the most favorable cost.
While you need to get a good look at the policy documents and compare different plans online before making your decision, you should also keep a tab on your credit score and ensure that it doesn’t hamper your chances of availing low premium rate on your insurance policy. Reputable insurers such as Future Generali also provide you the facility to determine the applicable premium amount for your profile through online calculators, which will help you better assess your financial capabilities and zero in on a life cover for your family.