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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), a credit score for individuals may range from 300 to 900. Those with a score of 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? It most definitely does. The higher your credit score is, the larger life cover you can purchase. In other words, if your credit score lies between 300 to 350, it shows a financially unstable lifestyle, and therefore, you would only be eligible to avail a micro-insurance policy, which is a low-life cover plan. On the other hand, if your credit score lies above 750, chances are that you can avail a large term cover at very low 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 a person who earns a high income. Similarly, if a person has a history of making late payments or skipping payments altogether, 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 realise this, and as a result, 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 an incapability to make disciplined, timely premium payments. Therefore, insurance companies may raise the premium costs of a life insurance policy for such an individual, assuming them to a riskier proportion than average.
Another factor that could hamper your chances of getting a higher rate of premium 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. It is the ratio of the credit you use against the total available credit. Therefore, a high credit utilisation could suggest an irresponsible spending behaviour on your part.
In other words, if the insurers have a reason to believe that you are not able to handle your money well, it is also unlikely for you to take care of your health too. Subsequently, if you have a high utilisation ratio on your credit report, it can result in an increased insurance premium rate on your life plan.
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 can manage multiple loans; you are 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 Cash flow for a Better Insurance Quote
Having a 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 favourable 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 of your credit score and make sure that it doesn’t hamper your chances of availing a 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 in turn, help you better assess your financial capabilities and zero-in on a life cover for your family.