Are you a high risk to insure? They base much of the calculation on an insurance score. What is this magic number and how is it determined? A better question is… can you change your score and lower your insurance rate?
Here is our primer on everything you need to know about insurance scores.
What Is An Insurance Score?
First, let’s define insurance scores or “insurance credit score”. You probably know of your credit score. A low score makes it harder for you to qualify for loans and can cause higher interest rates.
An insurance credit score works in a similar way. It calculates how likely you are to file a claim. The number affects the rate of your premiums. Here, a higher score means you will enjoy lower premiums for homeowner’s, auto, and life insurance policies.
How Is Your Insurance Score Calculated?
Insurance companies gather information on potential customers from a few databases. These can include the Automated Property Loss Underwriting System (A-PLUS) and the Comprehensive Loss Underwriting Exchange (CLUE).
Using this data, a score is calculated. A typical insurance score range is between 200 and 997. Scores of 770 and higher are considered “good”, while any score below 500 is “poor”.
It’s important to note that each type of insurance has different standards for what is considered a good score. For instance, auto insurance premiums will be lower for someone with a score in the 700 range.
What Factors Go Into You Insurance Score?
Insurance scores are based on several factors, which together can help determine the likelihood that you might file a claim for an accident or loss. The most basic factors include stability ratings or micro ratings, which look at your credit score, zip code, and the infrastructure in your area.
There are other factors that come into play as well:
Your insurance history – Have you kept up with payments in the past?
Your financial history – A history that includes bankruptcy or poor credit can impact your score.
Your driving record – If you have a lot of tickets or driving violations, this can affect your score.
Your history of claims – If you have submitted a number of insurance claims, it signals that you are a higher risk.
Your driving habits – If you drive a lot for work, this can impact your rates. The more you drive, the more likely you are to be involved in an accident.
Obviously, you can’t do much to change factors like where you live, but you can take steps to raise your score in other ways. For instance, make sure you maintain good credit. You can also change bad driving habits that result in tickets, such as speeding and reckless and/or distracted driving.
Learn more about the difference between an insurance score and a credit score.
Know Your Score. Know Your Risk.
Everyone needs insurance. While you can’t get out of paying for it, you do have “some” control over your premium amounts. Be aware of how your insurance score affects your rates and take steps to ensure you have a higher number.
For more information and resources that can improve your finances, be sure to check out our other entries.