What Is Your Insurance Score and Why Does It Matter?

Do you know what your insurance score is?

Everyone knows what a credit score is, and nowadays, it’s fairly easy to access for free.

However, many people don’t know what an insurance score is, let alone what their own number is.

What Is an Insurance Score?

As you might have guessed, an insurance score is similar to your credit score. However, it applies specifically to insurance rates. In other words, an insurance company will consider this number when determining your rates. Like with a credit score, if you have a good insurance score then you’ll get better rates.

Your score is directly linked with your credit report. The insurer evaluates the data in that credit report. They want to know the likelihood that you will file a claim in the future. To determine this, they examine your past. If your credit report indicates that you aren’t likely to file a claim, then your insurance score is better. As a result, you get offered better rates. Essentially, the insurance company rewards you for being unlikely to require their services.

Basically, research shows that there is some correlation between specific aspects of your credit report and the likelihood that you’ll get into an accident or need to file an insurance claim. Therefore, starting in the 1990s, some states began allowing insurance companies to use these numbers to determine customer’s rates. However, not all states allow this, even today. Therefore, whether or not your credit impacts your insurance rates will vary depending on what state you are in.

Insurance Score vs. Credit Score

It’s important to understand that these two scores are not the same thing. Obviously, they are related. If you have a good credit score, then you are also likely to have a good credit-based insurance score. In both cases, you have good credit. Therefore, lenders will trust you to make your payments on time and in full.

However, just because you are good at making payments doesn’t mean that it’s smart for them to give you insurance. Yes, you’ll likely make your monthly insurance payments. They do take that into consideration. However, if your credit report indicates the likelihood that you’ll file frequent claims, then your insurance score might not be great in spite of your good credit score.

Insurance companies will look at your history of accidents and claims to determine your rates. Your credit score and report play a part but aren’t the only determining factors. Insurance companies also look at information in two big databases (called A-PLUS and CLUE) to get a sense of the risk they take on when they insure you. As a consumer, you are entitled to one free annual report from each of these companies. Therefore, you can order yours to get a sense of what insurance companies might see when they consider your rates.

Where to Get Your Insurance Score

Major credit businesses, such as FICO and Transunion, generate credit scores. Moreover, individual insurance companies sometimes use their own methods of calculation to get your credit score. For example, Progressive has its own data calculation tool. Therefore, there are slight variations in credit scores depending on who does the calculations.

This may sound odd, but if you think about it, it’s similar to getting your credit score from each of the three major companies (Experian, Equifax, and TransUnion). The scores are all similar, but they may not be exactly the same.

What Does This Score Affect?

If you live in a state that allows insurance scores for underwriting and rate determination, then you might want to know how this can affect you. Typically, you’ll see these scores used in two situations:

Auto insurance (including other vehicle insurance such as boats and RVs)
Home insurance (including homeowner’s and renter’s insurance)

These types of insurance are often mandatory. If you drive, then auto insurance is mandatory. If you have a home mortgage, then most likely homeowner’s insurance is mandatory. Therefore, you are probably affected by your insurance score even though you might not have known before today what that score even was.

Sometimes health insurance and life insurance plans also consider insurance scores, although this is less common.

Calculating Your Insurance Score

Since there are so many different places that might calculate your insurance score, it’s difficult to know exactly which factors will be taken into consideration. However, the companies all consider a variety of factors.

In terms of your credit report, they all look at the same basic information. What is your credit score? How good are you with making on-time payments? Do you have high amounts of debt? The lower your credit score, the lower your insurance score is likely to be.

In terms of other factors, it will depend on which type of insurance you’re applying to get. For example, auto insurance companies may look at:

Overall driving history
Tickets you’ve received in recent years
Auto accidents
Claims that you have filed with previous auto insurance companies

If you are looking at homeowner’s insurance, then you might be aware of the following:

Claims that you have filed with previous home insurance companies
Safety features such as house alarm systems

It’s important to be aware that there are certain factors that insurance companies are not allowed to take into consideration. Your home’s location, your race or cultural background, and your marital status are all off-limits. In other words, they can look at your potential risk as an insurance consumer, but they can’t factor your personal details into that risk assessment.

Like with a credit score, you’ll receive a number as your score. It’s typically between 200 and 997. Generally speaking, if you have a score of over 770, then you have a good score. In contrast, if your score is under 500, then you have a poor rating. However, this may vary depending on the company.

How to Improve Your Insurance Score

If you have a good score, then you get better rates on insurance. Therefore, a good score means that you don’t have to pay as much for coverage. As a result, it makes sense to do all that you can to improve your insurance score.

First off, you should take all steps necessary to improve your overall credit score. After all, it does play a big part in determining your insurance score. When you consistently make on-time payments, have a strong debt-to-income ratio, and meet the other demands to achieve good credit, it goes a long way towards reducing your insurance costs.

Furthermore, the more time that passes without filing a claim, the better your insurance score will be. Therefore, unless it’s absolutely necessary, avoid filing claims with your insurance companies. Although you may have to pay a bit more out of pocket at first to get that good score, the score means you’ll pay less on your premiums over time.

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Kathryn Vercillo

Kathryn Vercillo is a professional writer who loves to live a balanced life. She appreciates a good work-life balance. She enjoys balance in her relationships and has worked hard to learn how to balance her finances to allow for a balanced life overall. Although she’s only blonde some of the time, she’s always striving for total balance. She’s excited to share what she’s learned with you and to discover more together along the way.