Most people think of credit utilization as something that only matters when applying for a loan or a new credit card. But this key metric—the ratio of your credit card balances to your credit limits—can also subtly impact life insurance underwriting, approval odds, and policy design, especially for cash-value policies like Indexed Universal Life (IUL).
In this article, we explore how credit utilization affects your insurance profile, how insurers interpret this data, and why managing it smartly can improve both your approval speed and long-term policy value.
What Is Credit Utilization?
Credit utilization is a key component of your credit score. It represents the percentage of your available revolving credit (mainly credit cards) that you’re currently using. For example:
- If your total credit limit is $10,000 and you owe $3,000, your utilization rate is 30%.
Generally, credit experts recommend keeping this number under 30%—ideally below 10%—to maximize your credit score. But beyond borrowing, it also paints a picture of your financial habits and stability, which insurers consider during underwriting.
How Life Insurers Use Credit-Based Information
Life insurance companies often use what’s known as a Credit-Based Insurance Score (CBIS). While not identical to your FICO score, it is derived from similar data and used to predict the likelihood that you’ll maintain your policy over time.
This score may influence:
- Approval decisions (especially for large or permanent policies)
- Underwriting speed (whether you qualify for simplified or accelerated underwriting)
- Pricing tiers or eligibility for preferred rates
And credit utilization is a big piece of this puzzle.
Why Credit Utilization Matters in Life Insurance Underwriting
When applying for a policy—particularly an IUL or other cash-value insurance—your financial behavior is scrutinized to evaluate the risk of policy lapse or missed premium payments. High credit utilization can signal:
- Potential cash flow issues
- Overreliance on debt
- Higher likelihood of policy default or lapse
Even if you’re financially stable, high utilization could delay underwriting or result in higher scrutiny, especially if you’re applying for a large policy or using premium financing.
How Credit Utilization Influences IUL Applications
Indexed Universal Life (IUL) policies allow policyholders to build cash value linked to market performance, borrow against the policy, and structure flexible premium payments. Because of the financial complexity of IULs, insurers often:
- Perform soft or hard credit checks depending on face amount
- Assess your ability to fund the policy long term
- Evaluate whether the IUL is part of a financial strategy (e.g., tax-free retirement)
If your credit utilization is high, insurers may:
- Limit the maximum allowable policy size
- Request additional income or asset documentation
- Decline accelerated underwriting and push for full medical review
Tip: If you’re preparing to apply for an IUL, lower your credit utilization for 1–2 billing cycles prior—it can improve your credit profile and confidence with underwriters.
Credit Utilization and Policy Loans
Once your IUL builds sufficient cash value, you can take out policy loans—tax-free in most cases. Here’s where credit utilization becomes less relevant:
- No credit checks are required for IUL policy loans
- Your usage does not report to credit bureaus
- Policy loans do not impact your utilization ratio
That means an IUL can be a strategic financial tool for those who want liquidity without raising their utilization or adding more credit inquiries.
Strategic Uses of IUL to Lower Credit Utilization
Many high-earning individuals use their IUL to strategically manage credit profiles:
- Pay down credit cards using policy loans while avoiding taxable distributions
- Refinance high-interest debt with lower-interest policy loans
- Fund large purchases (home renovations, tuition, travel) without adding to credit card balances
This creates a powerful loop: good credit behavior gets you approved for IUL → IUL builds cash value → you borrow from it to maintain good credit behavior.
Credit Utilization and Business-Owned Life Insurance
For business owners using life insurance for key-person coverage, buy-sell agreements, or executive bonus strategies, credit utilization may also play a role:
- Insurers often evaluate the business’s credit and debt structure
- Owners may need to personally guarantee premium payments or loans
- Healthy personal credit can support smoother approval for large business-owned IUL policies
If you’re applying for business-related insurance, keeping personal and corporate credit utilization low can help secure better terms and avoid red flags.
What Credit Utilization Should You Aim For?
To optimize both your credit score and your insurance approval odds, aim for:
- Below 30% credit utilization across all revolving accounts
- Below 10% for top-tier scoring and underwriting consideration
- Even 0% utilization (if paid in full before the statement date) is seen favorably
Remember, utilization is calculated both per card and across all accounts, so spread balances smartly or consolidate debt strategically before applying.
Credit Behavior Shapes Financial Access
Credit utilization doesn’t just influence lending—it shapes how insurers perceive your financial habits, especially when considering large or long-term policies like IUL. Managing it wisely can lead to:
- Faster approvals
- Better underwriting classes
- More flexibility in policy design and funding
As life insurance and financial planning become increasingly integrated, how you use your credit today could determine what protection—and opportunity—you unlock tomorrow.
Smart Tip: Before applying for an IUL, review your credit utilization on each account. Consider paying balances down early to present your strongest financial snapshot to underwriters.