Understanding How Your Credit History May Affect Your Car Insurance Coverage

Many personal auto insurance companies consider your credit information when determining how much premium to charge for your insurance. So if you are calling around for new insurance, keep in mind that many insurers are looking at your credit history. I hope that we will be able to let you know why and how they do this.

The reason that some insurance companies use credit information is because there is a direct correlation between consumer's credit history behaviors and expected claims that may occur. Therefore, they feel that people with better credit behavior are less likely to have severe insurance losses.

The companies that do use credit scoring will still use other factors in determining your premium. They will also use your age, driving history, type of vehicle, where you live in determining how much you should pay for your insurance. Therefore, if you have not established a credit history yet, the companies that use credit history may not be best for you. They may not allow you to be eligible for certain discounts, which could result in higher premiums.

Is it fair for an insurance company even look at my credit information without my permission? The answer is yes. The Federal Fair Credit Reporting Act says "Reasonable procedures. It is the purpose of this title to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title." Found at http://www.ftc.gov/os/statutes/fcra.htm

If you feel that your credit history is better then the insurer can find, make sure the insurer has your correct name, address, social security number, and date of birth.

Some insurance companies will look directly at your actual credit reports when determining your rate, however most will use what is called an "insurance credit score." An insurance credit score is developed by using statistical techniques and methods to predict the likelihood a consumer will have a higher than anticipated loss. These are similar to what lenders use to predict the reliability of an applicant repaying a loan.

Insurance companies use many factors in determining your credit score. Here are some examples of those factors:

• Public records: bankruptcy, collections, foreclosures, liens, charge-offs, etc.
• Past payment history: the number and frequency of late payments and the days between the due date and late payment date.
• Length of credit history: the amount of time you have been in the credit system.
• Inquiries for credit: the number of times you have recently applied for new credit, including mortgage loans, utility accounts, and credit card accounts.
• Number of open lines of credit: the number of credit cards, whether you use them or not.
• Type of credit in use: major credit cards, store credit cards, finance company loans, etc.
• Unused credit: how much you owe compared to how much credit is available to you.

Your insurance credit score may differ from company to company, as they will use different factors in determining your premium. Notice that we call it an insurance credit score. This means that it encompasses many factors including credit.

Since each insurance company uses different techniques to determine your credit score it is hard to tell you what a good credit score is. Usually a good credit score will result in lower premiums.

Your agent or company is not obligated to tell you your credit score. In fact, they might not even know what it is. All they usually know is that your credit score qualifies you for a specific rate or policy. Some companies also offer better rates under each qualifying tier.

If you feel that there is incorrect information on your credit report, you should tell the credit bureau. If you report an error, the credit bureau must investigate the error and get back to you within 30 days. You can ask the credit bureau to send a notice of the correction to any creditor or insurer that has checked your file in the past six months. Once the errors are corrected, it is a good idea to get a new copy of your credit report several months later to make sure the wrong information has not been reported again.

How Much Life Insurance Do You Need?

If you're researching your life insurance needs, you might well be getting a lot of complicated information. It's not a simple subject.

Some financial advisors will tell you to multiply your annual income by a certain number, like 20. Others will tell you to buy only enough life insurance to replace the income you are expected to make between now and retirement. Some might recommend you buy only enough life insurance to cover your present debts.

The question "how much do I need" might not be the most useful way to approach the problem. The question you may want to ask is, "What do I want my life insurance to accomplish?" Then you can start to determine how much life insurance you'll need. Calculating your life insurance needs takes homework. It requires an individual solution, not a one-size-fits-all approach or a throwaway equation.

Why Do You Need Life Insurance?
This is a specific question, not a general topic. Think about why you're considering life insurance, or why you're considering an increase in the amount of life insurance you have. The most common reason for purchasing life insurance is to replace the income of a family member that others depend on. For that need alone, it's usually acceptable to multiply your annual salary by 20 and buy that amount of term life insurance for a period that will cover you until you retire.

If you have additional debts or obligations, you can consider adding those to the amount of insurance you need. However, keep in mind that debts and obligations like mortgages usually decrease over time, while a family's need for income replacement does not. If you and your spouse both work and are financially stable, it might not be difficult for your spouse to pay off a mortgage or debts, as long as you buy enough insurance to replace your income. If you're a single parent, however, you would probably need to purchase enough coverage to pay off all debts so that they're not passed on to your children.

Not Leaving a Burden
For some people, life insurance may seem too expensive, especially if they're just starting a family. If that's the case, it may make sense to initially purchase only enough insurance to cover your debts and obligations. Although you need to realize that it's risky to be underinsured, it's better that not having any life insurance. As your financial situation improves, you can usually purchase more insurance under similar terms.

For single people with no children, purchasing a small amount of life insurance can be an inexpensive way to cover debts and final expenses.

Additional Life Insurance Uses
Not everyone buys life insurance to replace income. If you're wealthy, have a large estate, or simply wish to donate to charity or establish a trust for your family, life insurance can be a smart purchase. If you have a large estate, you may want to consider buying a life insurance policy as a way to pay the estate taxes when you die. Otherwise, your family could be forced to sell off assets in order to pay the estate taxes. Life insurance could also be a good way to donate to a charity without paying taxes, or to establish a trust for your family or for philanthropic purposes.

Regularly Review Your Insurance
Because things change and it's impossible to predict the future, it's important to review your life insurance needs and coverage at least annually. If you make a change in your life, such as getting married, buying a larger house, or having children, your life insurance needs will probably increase. If your salary increases dramatically and your family becomes accustomed to a higher standard of living, your life insurance needs will also become higher. If you're certain of one of these changes before you purchase life insurance, make sure to include your expected circumstances in your insurance calculations.

The Hunt For A Missing Life Insurance Policy

Uh-oh! You're the beneficiary of a relative who just died, but their policy is nowhere to be found! What do you do? Well, don't panic, because if you find it in the near future, you may still be able to claim the death benefit. Here's what to do if a life insurance policy is missing:

1. Look through canceled checks or go to the relative's bank and request copies of any old checks. When reviewing the checks, see if there are any made out to life insurance companies.
2. Ask your relative's lawyer, insurance agent or accountant and see what information they can give you on your relative's finances.
3. Call their old employers and see if they bought into the company's group life insurance.
4. Call the Medical Information Bureau (MIB)—an organization that maintains a database showing if insurers requested your relative's medical information. If your relative applied for a life insurance policy within the past seven years, the MIB will more than likely have some kind of paper trail to help you find it. In addition, the MIB offers a Policy Locator Service that will search over the last 12 years to locate applications, for a fee.

Naming a beneficiary
If you are making someone your beneficiary, here are a couple of things you will want to do:

1. Be sure to provide your beneficiary with your life insurance policy details, such as policy number, insurance agent's name, company phone number and email address.
2. Keep your records together. To make it easier on your beneficiary, be sure to keep all of your records (financial and medical) together in one place. This will help alleviate any panic or stress if your beneficiary needs to find something after you have passed.

Different kinds of policies

• Term policy—If your relative had a term life insurance policy, and they died during the term and paid their premiums, the named beneficiary will receive their death benefits. If they died outside of the term or failed to pay their premiums, you won't receive anything.
• Permanent policy—If the policy was in force at the time of death, the named beneficiary will receive the death benefits. If the relative died a while ago, the beneficiary is entitled to the death benefits plus the interest accrued from the date of death.
• Lapsed policy—If your relative had a permanent life insurance policy and they stopped making payments and the policy lapsed, the insurance company could switch its status to one of the non-forfeiture options selected at purchase or specified in the policy. These options include extended term, reduced paid-up, cash surrender value, and loan value. In most cases, laws specify that there are certain amounts that must be returned to a policyholder or beneficiary even if premiums were not fully paid.

Lapsed Policy Non-forfeiture Options

• Extended term uses any built up cash value to buy a term life insurance policy in the amount of the current policy. If the insured dies before the term ends, the beneficiary collects the benefit. Otherwise, the beneficiary gets nothing.
• Reduced paid-up means that the life insurance company uses the cash value of the policy to buy as much insurance as possible. This reduces the death benefits, but keeps the policy in force.
• Cash surrender value refers to the amount of cash value a policy has. This amount is returned to the policyholder or beneficiary and the policy is canceled.
• Loan value is the amount of the policy's cash value available as a loan. This amount will be returned to the policyholder or beneficiary and the policy will be cancelled.

If the policy lapses due to the death of the insured, the beneficiary will collect the full death benefit. Also, there is no time limit on when the beneficiary can collect the death benefit. The only requirement is that the death certificate is presented to the life insurance company to verify the insured's death. If the beneficiary never comes forward, then no one receives the money.

Unreported death
If the policyholder dies and the insurance company isn't informed, the policy will lapse. In this case, the life insurance company will send letters informing the insured that payment was not received and their policy may lapse if this continues. If there is still no response, the insurance company may initiate a search, but if no answer is found, the policy will automatically lapse due to delinquency of payment.

Unclaimed death benefits: are they gone forever?
If a beneficiary doesn't collect death benefits, and the life insurance company can't find the beneficiary after a few years, the money is transferred back to the state where the life insurance policy was originally purchased. The full amount must be turned over to the state comptroller department within three to five years of the insured death. There, it is put into a bank account and considered "unclaimed property."

A database with the names and addresses of lost beneficiaries is located at the state comptroller's office, and many times, they try to find the beneficiaries to distribute the death benefits to. Depending on your state, you may be able to go online, look in the paper for any unclaimed death benefits, or call the state comptroller or treasurer for information.

It should be noted that if the life insurance company doesn't know the insured has died, they are not required to turn the money over to the state. If the state doesn't have a death benefits law in place, then the money will remain at the insurance company and they can continue to search for the beneficiary. Also, it is very rare for money to be turned over to the state, because most insurance companies have their own search techniques to find beneficiaries.

Insurance.com is a national online auto insurance agency, not a life insurance agency. We do not have information about specific life insurance policies, nor can we personally assist in locating a policy. If you choose to consult a service that will search for a policy for you, be sure they are reputable before you provide personal information or payment. If you have any questions or comments about this article, let us know, but please do not send personal information, such as your address, policy number, or social security number.