Weekly Insurance Post -> Week 1: Debt and Insurance

To insure is to become secured. All of us want that security in life. Basically, to sign up with an insurance policy means to get a financial reimbursement from that company when you suffer some loss. Different insurance companies offer you several alluring offers depending on the company and the type of insurance you would opt for. Though to sign up with insurance is compulsory in some states, but there are several other insurance policies that are not compulsory yet assure you more security. However to let this insurance keep going, debt plays a major role. Basically debt affects your insurance from various corners and so does insurance to debts.

How your debt affects your eligibility to opt for insurance

To determine your debt burden the insurance companies refer to your credit report, credit score, insurance score, amongst many other documents, depending on the requirements of the company. Your total debts greatly affect your credit report. If you have huge debt, lesser would be your eligibility to opt for insurance and vise versa. And as both the credit score and the insurance score is formulated on the basis of the credit report, your credit score and insurance score would be affected in the same way if you have too much of debt.

Credit Report

If you want to opt for an insurance policy, the first thing your insurer would demand is your credit report. Your credit report is a detailed document of your credit history. It reflects how you actually manage your finance. Insurance companies tend to check your credit report to ensure if you would be able to bear your premium amount. They also assess your creditworthiness from the credit report, to determine your likeliness and eligibility to handle your debts. This way they try to ascertain your proficiency to handle your premium amount and accordingly allow you to sign up with their company. In your credit report they mainly check out:

• Whether you have innumerable debts
  
  
• Whether you have a tendency to take frequent loans but you do not tend to pay it back on time
  
  
• Whether you have a tendency to take frequent loans but you clear your debts on time or may be before time.
  
  
• Whether you have a clean credit report.
  

Credit Score

Some companies also make it mandatory to look up to your credit score, widely known as the FICO score. The credit score is mainly calculated on the basis of your credit report. It is a numerical value that is provided by the credit bureaus as a standard measure of your credit worthiness. The insurance companies relate to this to determine their risk in signing up with you. They consider this score as the most appropriate on this ground because it is formulated on the basis of your record of:

• Late payments
  
• Non payments
  
• Outstanding debts
  
• Age of your credit file
  
• Your recent credit accounts report
  

Insurance score

Some insurance companies evaluate your insurance score as well to infer the total insurance risk they would have to bear from you. Basically it is a numerical ranking based on your credit history.

How your debt influences your premium rate.

High debt burden affects your credit history to a great extent. And as the insurance companies refer to your credit report, credit score and insurance score to fix up your premium rate, you must always have a proper credit history.

At times, despite having a high income you are not eligible to handle your premium for your debt burden. Thereby, the insurance companies refer to your insurance score to access if they would have a lower or higher insurance risk if you sign up with them. And depending on the risk they would have to bear they determine the premium rate they would charge from you.

According to statistical survey it has been proved that people who have low insurance scores are likely to charge more amounts of insurance claims and vice versa. The insurance companies thereby consider this as another factor to determine your premium rate. Normally they also provide you the insurance score based on that.

How insurance payment helps to clear your debts

It is always advisable to pay your insurance premiums regularly. Systematic premium payments for your insurance not only assure you a financial reimbursement that the specific policy offers, but also give you some additional security. This you may get if you are burdened with heavy debt and want a relief. Actually the additional security is the financial support that you may avail:

• If the cash value benefit in your life insurance matures at the time when you are facing debt problems. At that time you may use your insurance amount in clearing your debts or opt for debt consolidation or other debt management policies whichever would be applicable.
  
  
• If you facing huge debt problem and want some cash to for some immediate solution. In that case instead of opting for a payday cash advance or some personal loan you may rely on the insurance, you have opted for, to come out of your huge debt burden. If you have a life insurance policy according to the condition of your policy:
  
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• You may surrender your policy In case of permanent life insurance like whole life insurance, variable life insurance or universal life insurance you may withdraw your cash value if you surrender your policy. This cans one practical solution for you to overcome your huge debts at that time.
  
  
• You may opt for a policy loan In case of life insurance policy; according to the claims of your policy you may take out a policy loan against your policy to cater to your emergency debt payments. Normally you may make repayment for policy loan or installments.
  
  
• You may intentionally lapse your insurance You may intentionally stop paying premiums for your life insurance policy till the grace period the company would offer you and let your policy to get lapsed. Accordingly, your insurance company might offer you reduced insurance coverage that would be equal to the total amount of premiums you have already paid i.e. the paid-up-policy if the insurance clause state that.
  

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The two fold advantages of the insurance policy itself dictate the importance of insurance in your life. It is thereby always wise to make orderly payments for your insurance policies. The innumerable benefits that several insurance companies offer in the mainstream are beyond comparison to any other companies in the finance industry. However the additional benefit it offers in the debt market makes it all the more unique by nature.

To discuss about the major benefits of all types insurance, click here.