When most people think of a credit score, their mind goes straight to loans, credit cards, or mortgages. But behind the scenes, this three-digit number is also quietly shaping the cost and accessibility of something just as important: life insurance. While it’s not always talked about, your credit score can be a powerful financial signal that insurers use to estimate risk — and that means it can affect how much you pay for coverage or whether you get approved at all.
Credit Score: More Than Just a Lending Metric
Originally developed to help lenders assess a borrower’s likelihood of repaying debt, the credit score has evolved into a widely used indicator across various financial industries. Insurance companies — particularly those offering life insurance policies like term life, whole life, and indexed universal life (IUL) — use credit-related data in underwriting decisions to assess behavioral risk.
Why? Because a low credit score may suggest a higher likelihood of missed premium payments or lifestyle factors that could lead to higher mortality risks. It’s not about debt itself — it’s about the financial behaviors associated with your score.
How Life Insurers Use Credit-Based Insurance Scores
Most insurers don’t use your actual FICO score but instead generate a “credit-based insurance score.” This score is derived from your credit report and focuses on specific behaviors — such as:
- Late payments or delinquencies
- High credit utilization
- Length of credit history
- Types of credit in use
- Recent inquiries
It’s important to note that this score doesn’t consider your income, employment history, or personal details like race or marital status. It’s entirely focused on financial responsibility indicators.
Impact on Indexed Universal Life (IUL) Insurance
For individuals exploring IUL policies — which offer both death benefits and a cash value component tied to market indices — a solid credit score may open doors to more favorable underwriting classifications, potentially lowering premiums or enhancing policy terms.
Since IULs are long-term instruments often used in financial planning, insurers want policyholders who are financially stable and likely to maintain the policy over time. A strong credit history suggests you’re less likely to lapse on premiums, maximizing the policy’s investment and death benefit potential.
Real-Life Scenarios: The Credit Score Effect
Case 1: Daniel, Age 42, Excellent Credit
Daniel has a credit score of 810. When applying for a $500,000 IUL policy, he receives preferred-plus rates due to his excellent health and financial profile. His premiums are low, and he’s approved quickly, allowing him to start building tax-deferred cash value without hurdles.
Case 2: Rebecca, Age 38, Poor Credit
Rebecca has a score of 580. Although she’s in decent health, her low credit score raises red flags during underwriting. The insurer places her in a standard (non-preferred) class, increasing her monthly premiums by nearly 20%. She also needs to undergo more extensive medical and financial scrutiny.
Why Credit Score Matters for Policy Retention
From the insurer’s perspective, a higher credit score correlates with a greater likelihood that you’ll maintain your policy. Policy lapses — where coverage ends due to missed payments — are a cost burden for insurers and a sign of poor risk management. Therefore, companies use credit data to avoid issuing policies to individuals likely to cancel or default.
States Where Credit Use in Underwriting Is Restricted
Some states have implemented restrictions on using credit scores in insurance underwriting to protect consumers. For example:
- California: Prohibits use of credit scores in setting auto insurance rates; limits apply to life as well.
- Hawaii and Maryland: Limit insurers from using credit history to determine rates or eligibility for some insurance types.
If you live in a state with such protections, insurers may rely more heavily on medical history and lifestyle factors instead of your credit profile.
Improving Your Credit Score to Lower Insurance Costs
Whether you’re shopping for a new life policy or planning to increase your IUL contribution, improving your credit can give you an edge. Here are actionable steps to strengthen your credit profile before applying for insurance:
- Pay all bills on time — payment history accounts for 35% of your FICO score.
- Reduce credit card balances — aim for utilization below 30%.
- Avoid new credit inquiries six months prior to application.
- Review your credit report for errors and dispute inaccuracies.
These efforts won’t just help your loan approvals — they can directly impact the price and quality of your life insurance policy.
Should You Shop Around Based on Credit?
Absolutely. Different insurers weigh credit information differently. Some may place a heavier emphasis on medical underwriting, while others may scrutinize financial behavior more. That’s why it pays to compare quotes from multiple carriers — especially if your credit isn’t perfect.
Also, be aware that not all life insurers use credit-based insurance scores. Working with an independent insurance agent can help you find the right match based on your financial and health profile.
Credit Score and Other Insurance Types
Beyond life insurance, your credit score can affect:
- Auto insurance: Premiums can vary significantly based on credit-based insurance scores.
- Homeowners insurance: Higher scores may yield discounts.
- Disability or long-term care insurance: Similar underwriting practices may apply.
So improving your credit score is a smart, broad financial move — not just for getting loans, but for protecting your family and assets with affordable coverage.
Use Credit Awareness as an Insurance Strategy
Your credit score is more than a loan eligibility marker — it’s a window into your financial behavior that insurers consider when assessing risk. For those building long-term strategies through life insurance or IUL policies, improving your credit score can unlock lower premiums, better terms, and smoother approval processes.
Think of it as a silent partner in your financial planning — one that can reward you with stability, coverage, and even compounding wealth when tied to an indexed universal life policy.
Quick Tip: Before applying for life insurance, request a copy of your credit report. Knowing what’s in your file gives you the power to correct errors and boost your rating — potentially saving thousands over the life of your policy.