What are Insurance Scores and Why They Matter

Insurance Score, Credit Score, Insurance Risk, Calculating Risk

Insurance scores explained

Have you ever heard of an insurance score? Turns out a lot of people haven’t. You can think of an insurance score as being related to a credit score, but they aren’t the same thing. A credit score is calculated based on your ability to repay money you owe and affects whether you receive a loan for a large purchase, such as a car or house. An insurance score isn’t used to predict your creditworthiness; instead, it’s used to determine your insurance risk.

Insurance risk basically tries to calculate the likelihood that an insured event will occur. In other words, an insurance score is a number determined by insurance companies that measures how well your financial management is, and based on that, helps evaluate your overall insurance risk — for instance, how likely you are to become involved in an accident or insurance claim.

Some of the factors that help determine your insurance score are:

  • Overall credit score
  • Driving experience/accident claim history
  • Payment history
  • Outstanding debt
  • How many credit cards you have in your name, etc.

Once this number is configured, insurance companies then create a risk profile for you and establish premium rates.

However, laws differ in different states. Some states don’t allow the use of credit scores to determine your insurance score. That means depending where you live, your insurance score and credit score could be completely different. Texas upholds the use of insurance scores.  In other locations, credit reports may only affect new insurance applications or those renewing their insurance.

Interested in what your insurance score is? Every insurance company determines your insurance score slightly differently, so contact your provider if you’re interested in that information.

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