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Does Life Insurance Affect Your Credit Score?
December 12, 2024
Credit Checks for Life Insurance (Soft Inquiries Only)
When you apply for a life insurance policy, the insurer may perform a credit check as part of the underwriting process. The good news is that this is typically a soft inquiry, not a hard inquiry. Unlike applying for a loan or credit card, a life insurer’s credit check will never hurt your credit score because it’s done as a soft pull. Soft inquiries show up on your credit report for your reference but do not affect your credit score in any way.
Why do insurers even check credit? They use your credit history to generate an “insurance score” – a metric to help gauge risk. This check is only to evaluate your financial responsibility; it will not lower your score or be visible to future lenders. In fact, over 90% of life insurance companies either use or are considering using credit-based scoring during underwriting, but always in a way that doesn’t damage your credit rating.
Paying Life Insurance Premiums: No Credit Reporting
Your life insurance policy isn’t a loan or line of credit – it’s a service you pay for. As such, policy payments (or non-payments) are not reported to the credit bureaus. Whether you pay monthly, annually, or let the policy lapse, those actions won’t show up on your credit report or impact your credit history.
If you stop paying, the policy will simply lapse (end) after a grace period; you won’t incur a debt or collection item as a result.It’s important to choose a policy with premiums you can afford so that you don’t strain your finances. But rest assured, missing a life insurance payment won’t directly hurt your credit – you’ll just lose coverage once the policy lapses.
Similarly, having a life insurance policy does not help your credit score either. Since it’s not a credit account, your on-time premium payments won’t be reported to credit bureaus. Life insurance differs from auto or home insurance financing, where paying monthly could be seen as “borrowing” an annual premium – with life insurance, you’re not borrowing any money, so it has no effect on your credit score.
Does Having Life Insurance Help Your Credit?
Simply having an active life insurance policy does not improve your credit score. Credit scores reflect debts and credit accounts; a life insurance policy is neither. Even if you pay your premiums with a credit card (which could indirectly build credit if you manage that card well), the policy itself isn’t contributing to your credit history.
That said, maintaining life insurance is a sign of financial responsibility, which lenders might view positively in a general sense. But there’s no direct scoring benefit. Unlike a loan, life insurance doesn’t get reported to credit agencies, so it won’t establish or boost your credit. The primary benefit of life insurance lies in financial protection for your family, not in credit building.
Bottom Line: No Need to Worry
Life insurance has no direct impact on your credit score – it neither hurts nor helps it. Insurers may perform a soft credit check when you apply (with no score damage), and your policy payments or status won’t show up on credit reports.
In short, you can buy the coverage you need without fear of dinging your credit. Focus on getting the right life insurance to protect your loved ones, and manage your credit with loans and credit cards where it actually counts.
Frequently Asked Questions (FAQs)
Do life insurance companies report to credit bureaus?
No. Life insurers do not report your premium payments or policy status to the credit bureaus. Your life insurance isn’t a credit account, so it stays off your credit report. Even if you miss payments and the policy lapses, it typically won’t be sent to collections or show up on your credit history.
Will a life insurance quote or application be a hard inquiry on my credit?
No – getting life insurance quotes or applying will result in a soft credit inquiry, not a hard pull. Soft inquiries have zero impact on your credit score. Insurers use them to check your financial history, but they won’t lower your score. You might see the inquiry on your personal credit report, but lenders cannot see it and it doesn’t affect your credit.
Can a life insurance policy build my credit score?
No. Paying for life insurance doesn’t build credit because it’s not a debt or credit line. Only accounts like loans, mortgages, or credit cards that get reported to bureaus can influence your credit score. Life insurance is a separate financial product and has no bearing on credit – it won’t help or hurt your score.
If I cancel my life insurance or let it lapse, will it affect my credit?
Not at all. Canceling a life insurance policy or allowing it to lapse due to non-payment has no direct effect on your credit score. There’s no penalty on your credit report. The only consequence is losing the coverage protection. (However, avoid stopping payments without confirming cancellation with your insurer, to ensure no miscommunication that could lead to an unintended lapse.)
Why do insurers check credit if it doesn’t affect my score?
Life insurance companies check credit to assess risk, not to grant credit. They use your credit-based insurance score as one factor to evaluate your overall reliability. This helps them decide on your premiums or eligibility. Importantly, they do it via soft inquiry, so it has no impact on your credit score. In short, the credit check helps the insurer, but it doesn’t hurt you.
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