How Credit History Affects Your Life Insurance Plan?
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Credit score: The score used to evaluate the creditworthiness of a consumer depending on his credit history is known as “credit score”. It is used by the lenders to evaluate the consumer’s background and future ability to repay debts.
Higher is the credit score, more is the creditworthiness of the consumer.
How Credit History Affect Your Life Insurance Plan?
In the modern world, where “finance” is the buzzword, the credit score has found relevance in various elementary aspects. Life insurance is one of them!
All types of insurance providers- auto, life, medical, home etc. consider the credit score of their customers at the time of acceptance of the application.
Impact of Credit History
At the time of application for life insurance policy itself, the companies may ask you to provide your credit score.
They review your application in detail. If they find something suspicious or doubtful in your application, it may demand a deeper insight into the matter- it is then where your credit score can make an impact.
For example, you may be undergoing a property dispute case in the court of law and it has a mention in your life insurance application.
The insurance companies may want to know the impact of this case on your financial life. If your credit score is good enough, then they may be reassured that you will be able to pay the policy premiums despite legal matters around.
Lifespan is More Important!
Actually, for a general life insurance policy, the companies are more inclined to know your lifespan probability and thereby your medical history. Therefore, credit score holds importance but does not directly impact your application for life insurance plan.
However, if you have a bad credit score, things may become different and difficult too!
Poor credit ratings alarm the insurance companies to reconsider your application. They may ask you several questions in this regard- reasons for bad credit score, your current financial situation, and future prospects.
The rationale behind this is the risk associated with the policy holder’s financial status that can affect the company’s financial performance. For example- those who face problems in managing their finances are high-risk prospects.
How Does Credit History Affect Your Life in General?
Before we discuss the impact of credit history on life insurance policies, we need to consider the implications of credit scores and credit history in other aspects of our life.
As per the norms, credit history of a person is used to evaluate his financial position. These are some of the areas that consider credit ratings:
- The time period for the sanctioning of the loans and the rate of interest to be levied on the loan capital.
- For attaining credit or debit cards with special credit limits and obtaining lower rates of interest.
- Buying financial investment plans.
- Attaining a property or house for rent (owners of the properties are vigilant towards the credit history of their new customer)
You Must Know These Points
As we discussed above that the credit score can play a significant role in various elements related to our financial investments. Now let us discuss how credit history can have an impact on our life insurance policies.
If you have a good credit score then you may not have to worry about anything at all. However, people with bad credit ratings have some concerns in mind.
Credibility to Pay Back
Bad credit rating may make your insurance company doubt your credibility to pay back. You may have to explain the reasons behind the bad ratings to the company and assure them of your financial stability.
Generally, companies do not inquire about credit ratings unless there is something alarming in your application.
With good credit ratings, you can easily manage a situation like this. However, if your credit score is bad, it may cause the companies to doubt your payback capability.
Credit Score Reflects Lifestyle
Life insurance companies closely monitor your overall health. Longevity of life is the most important aspect for them.
They may be interested in knowing your credit score just in order to cross-check your lifestyle choices and behaviors in general. If your credit history reflects bad scores, the company will find out the reasons.
For example, if you have a “drunk and drive” case lodged in your name, you may have to explain the amount of drinking you do! If you are an excessive drinker then the company will be concerned about its repercussions on your health in long-term.
May Increase Insurance Cost
The policy may become expensive if your credit rating will be bad. In most of the cases, the bad credit ratings do not trigger the companies to reject someone’s insurance application.
They may levy higher charges on the applications that come along with poor credit scores but that too is not necessary.
The only case of rejection of the application may occur if some serious offense is indicated on your credit history or in the application itself. There are no other implications that credit history may have on your life insurance plan.
Insurers Want Trustworthy Clients
Good credit rating speaks for itself. If you face any problems with the rates of policies or consideration of your application at the company end, your good credit score may help. The companies will be benefitted to get associated with a trustworthy and financially stable client.
The credit score has gained much importance in many financial investments or dealings done by people. When it comes to life insurance policy, the impact of credit history is not a big issue. If you have a good credit score, it may help to add to your credentials.
However, if you have a bad credit score, you may not need to worry too much. The main concern of “life insurance” companies is to know your lifestyle, health conditions, family history, and financial future. With a bad credit score, the only impact you may have to suffer is the higher cost of life insurance policy.
If the companies find something wrong with your application then only they may consider your credit ratings further. Although we recommend our readers to maintain good credit ratings, they do not need to get worried if credit ratings are not favorable while applying for life insurance plan.