life insurance

Can Debt Impact Life Insurance Coverage?

Life insurance is one of the types of insurance that most people can’t really afford to ignore. It is good to have a life insurance policy if you want to ensure your loved ones are covered financially upon your death. Along with your health history, life insurance companies may also look at your credit history. While a bad credit can’t really keep you from applying for a life insurance policy, it can circuitously affect the amount you will pay for your monthly premiums.

Before applying for a life insurance policy, you may want to take a look at how bad debt or credit can impact the final cost of insurance. Here’s how debt can impact your policy.

How Your Credit Can Affect Your Life Premiums

Insurance companies don’t really care about your credit score. However, they will go through your bankruptcy and other financial activities listed on your credit report. And these kinds of things could end up affecting your premium rates. Also, while insurers won’t consider the exact figure on your credit score, they may factor in your risk score. Note that not all life insurance companies use this, though a lot of them use it to make the application process easier.

What Life Insurance Company Look For

Your credit history can give a life insurance company an insight into the way you manage your finances. Life insurers tend to look out for red flags that may convince them that you are too much of a risk to sell a life insurance policy to. For instance, if you are deep in debt or you have missed a lot of credit card payments, this could show that you don’t have a tight grip on your finances.

In many cases, bad debt won’t stop you from applying for life insurance. But a life insurance company may have doubts about whether you will be able to keep up with your monthly premium payments.

How Do Credit Insurance Scores Work?

life insurance coverage

Insurance claims information and credit report details can have an impact on your insurance score. Each insurance company uses credit insurance scores differently, and it’s not possible to look up your score, just like you would a credit score. Generally, you can get a better insurance score if:

  • You have a longer credit history
  • You don’t have a high amount of outstanding debt
  • You pay credit cards and loans on time
  • You have a mixed credit
  • You haven’t submitted lots of current requests for your new lines of credit

Your credit insurance score doesn’t have an impact on your sex, age, or personal details. However, your insurers will make use of these factors to set your monthly premiums during underwriting. If you have a more complex credit history or a case of bankruptcy, an independent insurance broker or agent can help you find the best policy for you.

When Can Bad Credit Result in a Denial for Life Insurance Policy?

Under certain conditions, bad credit can cause a life insurance company to outrightly deny your life insurance application, no matter your health condition. For instance, if you are in the middle of a bankruptcy proceeding, you may find it difficult to get life insurance coverage. The best thing you can do in this condition is to work on rebuilding an encouraging repayment history.

Due to the Chapter 7 bankruptcy, you will likely need to wait and sign up for a life insurance policy after your case has been discharged. Under a Chapter 13 bankruptcy filing, if you are completing a repayment plan, you will need to wait and apply for a life insurance policy after making some progress towards repaying your debts.

How to Improve Your Chances of Qualifying for Life Insurance with Debt?

The first thing you need to do is to improve your credit score by paying your debts and bills on time and doing everything you can to clear up any credit issues you may have. You can also contact your creditors and provide a considerable discount to clear your debt. Many creditors will take a huge discount on the amount you owe if you offer a settlement. You may also want to consider purchasing simplified life insurance rather than traditional life insurance because they will factor in your debt and likely decline you.


Debt has an indirect impact on your life insurance coverage. In the grand scheme of things, insurers do want to know if you’ll be able to keep up with your premium and ensure you are not over-insured. Also, you may want to check with your state’s insurance department to find out what your state’s law has to say about how life insurance companies can use your credit details in the underwriting process.