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 insurance definition? ›
Insurance is a financial safety net, helping you and your loved ones recover after something bad happens — such as a fire, theft, lawsuit or car accident. When you purchase insurance, you'll receive an insurance policy, which is a legal contract between you and your insurance provider.
How do you build insurance score? ›
10 Tips to Improve Your Insurance Score
- Pay bills on time.
- Keep outstanding balances at least 75% below your available credit.
- Avoid too many hits on your credit report from loan and credit card applications.
- Limit the number of credit accounts and credit cards in your name.
- Regularly review your credit report.
Issued annually, its grades illustrate an insurer's ability to pay out on claims and meet other financial obligations. CNBC Select often uses A.M. Best's ratings to help determine the best insurance companies in many different categories.
What's the purpose of a personal insurance score quizlet? ›
An insurance score is comprised of an individual's credit score and his or her history of claims. The more claims an individual has filed the greater a risk that individual is viewed to be and the higher premiums will be on his or her insurance policy.
What is a good insurance score? ›
According to LexisNexis, a risk-focused data analytics company, insurance scores range from 200 to 997 in its scoring metric. Scores higher than 775 are considered good.
What is the different definition of insurance? ›
Insurance is a legal contract between a person and an insurance business in which the insurer promises to provide financial protection (Sum guaranteed) against unforeseen events for a certain price (premium).
What is an insurance score made of? ›
Generally, five different factors are used to determine your credit-based insurance score: payment history, outstanding debt, credit history length, pursuit of new credit and credit mix. You can improve your credit-based insurance score. Make payments on time. Pay bills, taxes and fines/fees as agreed.
What is an average insurance score? ›
Insurance score range
| Score | Rating |
|---|
| 100-500 | Poor |
| 501-625 | Below average |
| 626-769 | Average |
| 770+ | Good |
Mar 27, 2023
The scores predict different things.
Credit-based insurance scores predict the likelihood that someone will file claims that lead to a loss for the insurance company. Credit scores predict the likelihood that someone will miss a bill payment.
Understanding Insurance Company Credit Ratings
For example, A.M. Best's highest insurance company credit rating is A++, meaning superior, while Fitch's is AAA for exceptionally strong, Moody's is Aaa for the highest quality, and Standard & Poor's is AAA for extremely strong.
What is an auto insurance score? ›
Your auto insurance score, also known as a credit-based insurance score, is based on information in your credit report. There are multiple factors used to determine how much you pay for auto insurance, but if you work to build a healthy credit history, it can help you achieve a better credit-based insurance score.
Who is the number 1 insurance company in America? ›
State Farm is the most popular insurance company nationwide, and it also is the most popular company in 19 states. Progressive is the largest insurance company in 21 states, including many New England states, some states in the Midwest, Florida and Texas.
What are the benefits of score? ›
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What is auto insurance score based on? ›
In general, your auto insurance score is based on your accident history, your claims history and information pulled from your credit report. Some of the information from your credit report that can impact your insurance score includes your: Length of credit history. Payment history.
Why is credit score important for car insurance? ›
How does credit affect car insurance prices? Nationwide uses a credit-based insurance score when determining premiums. Studies show that using this score helps us better predict insurance losses. In fact, 92% of all insurers now consider credit when calculating auto insurance premiums.
