4 Factors You Didn’t Know Companies Use to Calculate Life Insurance Rates

Buying life insurance used to be a long and tedious process for decades.

Picture a huge, complicated paper application that required medical exams and multiple records requests. Now, thanks to the wonders of the Internet, insurance companies can access your entire life’s story in just a few moments. This is great for ease and convenience, but it also means there’s no hiding anything.

For the most part, folks don’t really know what life insurance companies are looking for when they organize a quote. Some factors, like a person’s medical history, is common knowledge enough. But information found in a person’s financial, criminal, and personal records also affect these rates long-term—and usually for the worse.

Insurance policies are a very serious thing. If you lie, or try to defraud an insurance company, you could be committing a criminal offense. After all, these contracts are fixed for decades, and they can’t be canceled by the company in question. So you can bet they’re going to double-check those answers.

Since this is such a serious matter on all sides, here are a few places you should know insurance companies do their homework on:

1. Medical History

This may not come as a surprise, but few are really aware of the extent that insurance companies are able to scan a candidate’s medical history.

First, they’ll check a client’s pharmacy reports, which lets them see all the prescription medicine prescribed over the last five to ten years. What folks don’t realize is this also includes prescription medicine that patients have already stopped taking.

In short, even if you stopped taking those pain meds a year ago, it could still hurt your rate.

Or let’s say you were prescribed anxiety medicine three years ago because you went through personal trauma. That will still show up. Anything you’ve been prescribed, even if you didn’t fill it, will show on your record.

Insurance companies can also request medical records from your doctors—but that might not be the most efficient way to get information, regardless of how it sounds. For example, let’s say you had to have a biopsy done, but it turns out the tumor was benign. Although it’s in your history that you saw Doctor A, the company might ask your primary care physician, Doctor B, for a report. If Doctor B doesn’t have it, he’ll say he sent you to an oncologist, Doctor C. Then the company says, “Oh, now I have to get the report from the oncologist to confirm the biopsy was benign.”

Here’s the problem: The more reports the company has to request, the more money they spend trying to obtain these reports. And if they cannot track down these reports, your rate will increase or you may get declined outright.


2. Financial History

Another factor insurance companies use to assess risk is your financial history.

They’ll look at your credit score, analyze how many times you’ve moved (or haven’t moved), scan your history of foreclosures, short sales, and tax liens. They’ll even look at your history of bankruptcies.

To secure all of this information, insurance companies use a third-party company called LexisNexis, which provides a lot of this financial information, which includes credit scores, how many bank accounts you have open, the balances of those accounts, and any late payments.  

Insurance companies take stock of this information, and depending on your score, they can ding you. Furthermore, each company values this information differently. I’ve even seen some companies ding someone for living in one place for too long. Talk about goofy stuff!  


3. Criminal History

Perhaps the most surprising check is the one done at the department of motor vehicles (DMV).

Insurance companies use DMV scans to confirm you are who you say you are by using your driver’s license number. But this also means they can see any violations you’ve had. This includes DUIs and speeding tickets.

If you’ve had a DUI within the last two or three years, it can absolutely negatively affect your insurance ratings. If you had too many speeding tickets in the past year, it can also affect your rating.

Essentially, insurance companies are also looking at your past criminal history—DUIs, misdemeanors, felonies. Mostly what you need to worry about is recent charges, generally within the last five years or so. But if you messed up fifteen years ago, you don’t need to stress about that affecting your rate.


4. Insurance History

The last factor insurance companies are checking is whether or not you’ve applied for other forms of insurance—or if you’ve already applied and been denied.  

The thing is, insurance companies share some data. It’s fairly easy for one company to see your history of applications elsewhere. Somebody can’t just keep applying for $500,000 with ten companies. The Medical Insurance Bureau will flag it.

While this is meant to be a precaution against fraud, it can really make it hard for some folks to get approved. If they’ve been denied by five other insurance companies, why would the sixth one approve them?

The good news is that all of these insurance companies operate under different guidelines. It sounds bizarre, but if you have an experienced agent, they can get you the best rate.  

One of the things we do at True Blue Life Insurance is ask applicants to fill out a questionnaire on our website. Then we ask additional questions during the application process. If something comes up and it looks like they will get declined, we’ll send them elsewhere if it means the customer can get a better rate or has a better chance of getting approved there.

Regardless of someone’s credit score, or driving record, or medical history, the most important thing is creating an insured population. That means working together to find the best possible rate so everyone can find the life insurance that suits their needs—and that’s a pretty good reason to come out of hiding.


About Brian Greenberg

Brian has founded businesses in e-commerce, marketing, and financial services. He has generated over 50 million in revenue from his businesses and collected over 10,000 reviews and testimonials from customers. He is the founder and president of True Blue Life Insurance, whose mission is to be transparent, honest and helpful to their customers without ever bugging or pushing them.

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