How Bad Credit Can Impact Your Life Insurance Premium—And How We Can Help
Life insurance is one of the most important financial safety nets you can have. It ensures that your loved ones are taken care of financially if anything happens to you. But did you know that your credit score can directly impact how much you pay for life insurance? That’s right—just like when applying for a loan, mortgage, or credit card, your creditworthiness plays a role in the premiums you’ll be quoted by life insurance companies.
Many people are shocked to learn that bad credit can mean higher life insurance costs, but don’t worry—I have good news. You’re not stuck with these higher premiums forever. In fact, we have a solution that helps repair your credit before you apply, ensuring that you secure the most affordable rates possible. Keep reading to learn how bad credit impacts your life insurance and how we can help lower your premiums.
The Link Between Credit Score and Life Insurance Premiums
Life insurance companies determine your premiums based on risk factors. While they mainly focus on things like age, health, and lifestyle habits (such as smoking), your financial history—particularly your credit score—can also be a deciding factor. Here’s why:
1. Poor Credit Suggests Higher Risk
Insurance providers view applicants with bad credit as a higher risk. Studies have shown that individuals with low credit scores tend to have higher mortality rates. Insurers use this data to justify charging higher premiums to people with lower credit scores.
2. Financial Instability Signals Potential Lapses
A lower credit score can indicate financial instability, meaning you may struggle to keep up with premium payments. From an insurer’s perspective, this increases the likelihood of policy lapses, making them hesitant to offer low-cost coverage.
3. Your Credit Affects Your Overall Financial Health
Bad credit often goes hand in hand with high debt, late payments, and even bankruptcies—all of which can make you appear as a greater financial risk in the eyes of an insurance provider. While insurers primarily evaluate your medical history, many have begun factoring in credit data when assessing policy applicants.
How Much More Will You Pay for Life Insurance with Bad Credit?
It depends on how severe your credit issues are. While insurers don’t explicitly advertise a “bad credit penalty,” research suggests that individuals with low credit scores can end up paying anywhere from 20% to 50% more for life insurance than someone with good credit.
For example:
A healthy 35-year-old non-smoker with a good credit score might pay $30 per month for a $500,000 term life policy.
The same individual with a low credit score might pay $45 to $50 per month for the exact same policy.
That’s an extra $180 to $240 per year—or $5,400 to $7,200 over a 30-year term!
This is money that could be going toward your savings, retirement, or even just day-to-day expenses. Fortunately, there’s a way to avoid these unnecessary costs.