Ask any financial advisor about what is the first product to be considered while implementing a financial plan and he is likely to say insurance. Insurance products, both general and health are must haves for all, depending upon their age, needs and liabilities. Insurers who manufacture these products however do not dole out these products without adequate risk assessment. Just like it is with lenders and rate of interest, premiums of insurance companies are also based upon thorough risk assessment reports.
Insurance companies thus have begun to conduct a CIBIL score check on a potential customer to arrive at a proper assessment of the risk he brings to the table. Insurance companies have begun to maintain insurance scores just like credit score. Thus, it is a fact , that your score does have a strong co-relation with your insurance score and your premium will be impacted by your CIBIL score. Here is how.
If your credit score is low on account of repayment related problems, it is suggestive of the fact that you are under stress financially. To a potential insurer it will mean that financial problems will tell on your mental and physical health. Therefore if you wish to purchase a health insurance product, your premium is likely to be high. Similarly, if you have a low CIBIL score on account of a loan default, the insurer will demand a higher premium on the assumption that your risk potential is high since you already have defaulted on your repayments.
High credit utilisation
One of the factors that impact your credit score is your credit utilisation. In other words it is the amount of credit you use as against the total amount made available to you. Ideally, your credit utilisation should not exceed 30%. If it’s 50% and above, it can spell trouble for you and result in a low CIBIL score. To an insurer, it will indicate that you are not trustworthy or irresponsible about credit handling. The insurance company will hence charge you a higher premium on this basis.
Thus as you can see, credit score has a direct impact on the cost of your insurance. It will therefore be no exaggeration to state that a good CIBIL score is equal to a low insurance premium. Here are some tips to boost your score if it is languishing at the moment.
Check your repayment track record– This is the first and foremost factor that impacts CIBIL score. Check all your credit lines and ensure that you are repaying all your outstanding debt as per schedule. This is most applicable to your credit card debt. Make it a habit to make repayments of the outstanding balance in full each month instead of making the minimum amount. This basic credit discipline will ensure that your repayment track record is blemish free and will keep your credit score high.
Maintain credit utilisation below 30%- As mentioned earlier, it is prudent to keep credit utilisation under 30%. You may consider enhancing your credit limit on your card and keep a low spending threshold on your card to achieve this goal.
Maintain a good credit mix– Too many unsecured credit lines such as personal loans and credit cards have a negative bearing on your cibil score. You need to have a good mix of secured and unsecured loans to maintain a high score.
Keep a vigil over your own financial health- Lastly, and most importantly it is imperative to conduct a CIBIL score check yourself at least twice a year. By scrutinising your CIBIL report at least twice annually you will be assured that your credit health is in order and your report is error free.
A good CIBIL score can help you not only in availing timely credit at competitive rates, it can also help you procure the insurance products of your choice at low premiums.
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