Your credit history reveals more than whether you’re likely to repay a loan. Insurers see a connection between how you handle credit and your risk of dying early, and some use credit information to help price life insurance.
“Credit data overall isn’t as important as family health history [or some other factors], but it appears to be a good predictor of good health and longevity,” says Alison Salka, senior vice president and director of research for LIMRA, a global life insurance research organization.
One clue of many
Credit records are among many that insurers can use to learn about you. Other data include details in your driving record, prescription drug history and information from past life insurance applications.
A growing number of insurers use advanced software to process that data and assess risk. The more data they gather and the smarter their predictive models get, the more policies they can issue without requiring life insurance medical exams. Their goal is to sell more policies by making it easier for consumers to buy them.
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Among the data life insurers use to evaluate applications, according to a 2017 LIMRA survey:
- 18% said they used applicants’ credit records
- 28% used a predictive model by analytics company LexisNexis Risk Solutions that includes credit information
- 8% used a credit-based score for life insurance applicants developed by credit bureau TransUnion
Use of credit controversial
Insurers have used credit history to help price car and home insurance for many years; they say the better your credit, the less likely you are to file claims. Life insurers began exploring the predictive power of credit in the past decade, Salka says.
California, Hawaii and Massachusetts have banned the use of credit history to price car insurance, but states haven’t limited its role for life insurance. Consumer advocate Birny Birnbaum, executive director of the Center for Economic Justice, says using credit histories to price insurance unfairly penalizes low- and moderate-income consumers and disproportionately affects minorities.
Insurers review credit information differently than lenders do. LexisNexis Risk Solutions says it avoids variables that could be interpreted as proxies for income, such as loan balances.
In addition, the LexisNexis tool considers data from driving records and a slew of public records, such as bankruptcies and criminal histories. It produces a score, which insurers can use with other data, such as prescription drug history, to set customers’ rates or decide which applicants must take a medical exam.
Applicants who qualify without having to take medical exams can get covered right away, instead of waiting weeks for lab results.
The simpler, speedier process will help more people to get the coverage they need, says Elliott Wallace, vice president and general manager of life insurance for LexisNexis Risk Solutions. “That’s what it’s all about.”
What consumers can do
Since your credit history can affect prices when you buy insurance, borrow money — even get a phone or start utility services — it’s wise to check your credit reports and dispute errors. You’re entitled to a free copy of your credit reports from each of the three major credit reporting bureaus every year. In between the free reports from the credit bureaus, you can keep tabs on your credit activity with NerdWallet’s free credit report summary, which updates weekly.