An insurance score, also known as an insurance credit score, is a rating computed and used by insurance companies that represents the probability of an individual filing an insurance claimwhile under coverage. The score is based on the individual’s credit ratingand will affect the premiums they pay for the coverage. Low scores reflect higher risk, so a high score will result in lower insurance premiums. Conversely, a low score will result in higher premiums.
Key Takeaways
- An insurance score is a credit rating used by insurance companies to assess a potential insured consumer's level of risk.
- The insurance score is one of the primary determinants in how much monthly insurance premium the consumer will be assessed.
- Scores range between 200 and 997, with low scores reflecting higher risks.
- What constitutes a good score varies for different types of insurance and rating companies.
Understanding Insurance Scores
An insurance score is a key component in determining the total premiumthat an individual pays for health, homeowners, auto,and life insurance policies. Insurance companies determine an individual’s score,in part, by usingproperty claim databases like the Automated Property Loss Underwriting System (A-PLUS) and the Comprehensive Loss Underwriting Exchange (CLUE).
Insurance scores range between a low of 200 and a high of 997. Insurance scores of 770 or higherare favorable, and scores of 500 or below are poor. Although rare, there are a few people who have perfect insurance scores.
Scores are not permanent and can be affected by different factors. There are several ways for a consumer to increase their low scores (and possibly lower their premiums). To begin, a consumer will benefit by improving their credit scoreand paying bills on time, in addition to reducing any type of debt. A consumer may also try to limit the number of insurance claims filed over a certain period in order to boost their insurance score.
While most health, homeowners, and life insurance companies have a similar process for computing consumers' insurance scores, auto insurancecompanies have different standards for what they consider a good score. Some may offer lower premiumsfor scores in the 800-range, while others will only require scores in the 700-range to qualify for certain discounts.
Data analytic companies like FICO (formerly the Fair Isaac Corporation) and ChoicePoint have different scales for how they interpret the scores of auto insurance companies. FICO's scale ranges between 300 and 900. Scores above 700 are considered good, and anything above 800 is considered exceptional (and of little risk for the company).
ChoicePoint’s scores, on the other hand, range between 300 and 997, with good scores nearing the higher end of the scale. Consumers with ChoicePoint credit files may obtain a free report.
A low insurance score can be costly, especially for auto insurance coverage, which is legally required for car drivers in 49 of the 50 states in America. For example, if an individual’s insurance score causes their auto insurance premium to increase by$25 per month, they will pay approximately $300 more in premiums per year. In four years, the premium difference will be $1,200. Over 10 years, it will cost them $3,000, an amount that could be invested or spent in other ways.
FAQs
An insurance score is a credit rating used by insurance companies to assess a potential insured consumer's level of risk. The insurance score is one of the primary determinants in how much monthly insurance premium the consumer will be assessed. Scores range between 200 and 997, with low scores reflecting higher risks.
What is the purpose of an insurance score? ›
This score is used to help determine the likelihood that you will make an insurance claim in the future for both home and auto coverage in states where it is allowed.
What is a good insurance score number? ›
According to the company, a score of 770 or better is considered good and will get you favorable rates. A score of 500 or below is considered poor and could result in higher premiums or being turned down for coverage.
How do I calculate my insurance score? ›
Your insurance credit score is calculated based on information available in your credit report, accident history, and insurance history, including previous claims. Other factors can include your age and your zip code, as well as the car's make and model.
What's the purpose of a personal insurance score quizlet? ›
What's the purpose of a personal insurance score? It's a way for insurance companies to rate the likelihood of an applicant filing an insurance claim.
What is a good LexisNexis score? ›
Here is an example of scores and rankings from the LexisNexis website: Good: 776-997. Average: 626-775. Below average: 501-625.
Does insurance score affect credit score? ›
An insurance score only applies to discounts, not increases. The insurance score is never used as a reason to charge higher rates, and it only counts as a “soft hit” on your credit report. It doesn't impact your overall credit score.
Why is my auto insurance score low? ›
However, if you have a spotty payment history and frequently make late payments, have maxed-out credit cards, and have applied for numerous loans recently, you're likely to have a low insurance score. Personal information is not allowed to be used when calculating your insurance score.
How are insurance ratings determined? ›
Insurance company ratings take into account a number of factors. Besides the finances, the general health and ethics of the company are also considered before rating the insurer. Some other consideration factors are: Cash in reserve.
Does Progressive run your credit? ›
Does Progressive check credit history when my policy renews? In states where it is allowed or required by law, we periodically review policies, including credit history.
It may be on your statement, or you can access it online by logging into your account. Purchase credit scores directly from one of the three major credit bureaus or other provider, such as FICO. Use a credit score service or free credit scoring site. Some sites provide a free credit score to users.
What is the purpose of a personal insurance score? ›
An insurance score is a credit rating used by insurance companies to assess a potential insured consumer's level of risk. The insurance score is one of the primary determinants in how much monthly insurance premium the consumer will be assessed. Scores range between 200 and 997, with low scores reflecting higher risks.
What are the benefits of score? ›
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Why do insurance companies want to know your credit score? ›
Most insurance companies using credit information will include it as a factor in determining your rate. For example, someone with a relatively high credit score may pay a lower premium than someone with a relatively low credit score.
Why are insurance ratings important? ›
Ratings for insurance companies matter because they highlight the financial stability of an insurer and help people gauge if the company will be able to provide them with the money they need in the event of an accident or catastrophe.
Why do insurance companies go by your credit score? ›
Why do insurance companies use credit information? Some insurance companies have shown that information in a credit report can predict which consumers are likely to file insurance claims. They believe that consumers who are more likely to file claims should pay more for their insurance.
What are the benefits to checking your score? ›
Checking your credit history and credit scores can help you better understand your current credit position. Regularly checking your credit reports can help you be more aware of what lenders may see. Checking your credit reports can also help you detect any inaccurate or incomplete information.
