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How to Get an Insurance Policy with Bad Credit?

Insurance companies do their best to convince us that we are their proverbial “friends in need” and their sole intention is to help us as we are their “friends indeed.” Gullible customers get easily convinced and fall into their “High premium low claim” trap.

If, as a future insurance buyer, you want to avoid this trap, be honest and outright with insurance agencies. If there’s anything else to help you see through their lies besides being upright, it is bad credit. Hard to believe, but it could come as your saving grace in situations like that.

The sketchy insurance agent, sitting next to you and bringing all his persuasion skills into play, all the while hoping that you’ll buy from his company – tell him straight up that you have bad credit. Give him few minutes to sink that in and then ask him what kind of insurance you are going to get with that.

I bet he’ll choke a few times before giving you an answer.

Such is the power of bad credit. You could use it as a filtering tool. Agencies that make over-the-top claims or conceal hidden charges will cease to bother you once you tell them that you have bad credit.

Credit record and insurance

The bad news, however is that bad credit may have one or two upsides, but the downsides are pretty much endless. One of the downsides is that you’d be scowled by the majority of insurance providers.

Your credit record matters. It matters when you apply for a mortgage, when you apply for a loan and when you purchase insurance. Bad credit translates to low-quality insurance. Assuming you don’t have much idea about finance, here’s how bad credit makes it difficult for you to get an insurance policy that gives you good value for your money:

Insurance companies collect money from policyholders in the form of premiums. Premiums can be high or low depending on how wealthy the policyholder is and few other things. Part of the money they collect is used to pay out for settling claims.

Insurance companies want customers to buy policies with high-premium but with low-coverage. What customers want is quite the opposite. Credit report is a bargaining tool for for insurance buyers. Good credit record means better insurance offers.

What’s the solution?

Having bad credit puts you at risk of being disadvantaged in the insurance market. The common wisdom is when you are disadvantaged, you have less options. However, that’s not true. A bad credit doesn’t necessarily mean you have to select whatever low-value insurance available to you. There are quite a few leeways for people with poor credit record and you can put them to use if you know how.

Excellent background

Credit record is not the only thing that decides whether you are eligible for insurance, how much premium you ought to be paying and your deductible amount. There are other things that could also factor in and one of them is your background.

Let’s say you want to purchase auto insurance and you have an excellent driving record. No speeding ticket, no recorded history of drunk driving; the vehicle you drive presently has never been involved in any accident – all these are brownie points getting you near a low-deductible, low-premium auto insurance.

Your age could go in favor of you or against you. You could be the most docile person on earth but if you are younger than 25, chances of getting a favorable policy are slim. Auto insurance companies use statistical models to decide the probability of an accident. Under 25 are more likely to meet an accident than those who are 25 or older.

Same way, homeowners looking for insurance, who have previously been victims of burglary or whose houses incurred some sort of damage in the past due to fire accident, or who live in hurricane prone areas are more likely to claim for reimbursement. Hence, they have less chances to get low-premium, high-claim insurance.

If the location of your home, driving history, etc are all okay, you can expect a decent insurance policy despite bad credit. However, it’s not guaranteed. This drives insurance owners to look for :-

Third-party negotiators

Private agencies negotiate with insurance companies on behalf of their customers. They attempt to circumvent the impact of bad credit. They understand the extent of damage that bad credit can cause and in order to persuade the insurance company, they cite the goods.

Your job is to assist them. Do all the following:

  • Pay your bills on time.
  • Do not max out your credit card and follow the recommended guidelines.
  • Pay off all the unpaid debt.

Simply put, bring a consistency in your financial life. And do keep in mind this is not an one-time affair. You have to keep maintaining it – even after you get the insurance.

Choose either one

You don’t necessarily need a private agency to negotiate. If you are willing to sacrifice either one of the two – low-premium or high-claim – then you can negotiate your way to purchasing an insurance policy, despite having bad credit.

If you have a high-paying job, I’d advise go for high-premium option. If your savings are high, low-claim would be perfect. Take ample time and think along the lines of your financial reality before taking any decision.

Summing up

Bad credit makes it difficult for you to get an insurance deal with desirable terms and conditions. However, as we’ve discussed all through this article – it’s difficult but not impossible. You need to know the right strategies, the hacks that work. To bring some comparison here, it’s like a game of cards. If you know how to play your cards right, you’ll end up winning the game.

Peter Christopher

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