What is an Insurance Score?
An insurance score is a numerical value derived from a person’s credit history and other financial indicators to predict the likelihood of filing a claim. This score helps insurers determine the premium rates for various insurance policies, such as auto or homeowners insurance.
The insurance score is different from a traditional credit score. While both use financial data, the insurance score focuses on factors that predict future risk, such as the likelihood of missing payments or filing claims. A higher insurance score typically leads to lower premiums, while a lower score might result in higher premiums, reflecting a perceived higher risk.
For example, when applying for auto insurance, the insurer may use your insurance score to gauge the likelihood of future accidents or claims. It helps insurers balance risk exposure, rewarding those with responsible financial behavior with lower rates. However, some argue that this method can disproportionately affect individuals with lower credit scores, even if they have a clean driving or claims history.