The cost of renters insurance is determined by where you live, the amount of coverage you select, and if you have filed any past claims. However, in most jurisdictions, your credit history has an impact on your rate, and it can make a significant difference.
According to a recent study, renters insurance prices for those with bad credit are 83 percent higher than those for persons with good credit in jurisdictions where credit is considered as a grading component. (What constitutes a bad or good credit score varies per insurer, although these numbers generally correspond to FICO credit score ranges.)
In California, Maryland, Massachusetts, and Washington, using credit to set renter’s or other types of house insurance pricing is now prohibited.
How credit affects renters insurance rates
Insurers have used credit-based insurance scores to assist establish premiums and choose who they will insure since the 1990s.
When you apply for a credit card or a loan, your insurance score is similar, but not identical, to the credit score that banks look at. The same characteristics, such as payment history and outstanding debt, are included in both ratings, but they are weighted differently. Your insurance score is likely to be low if you have a poor credit score.
You might not think your financial habits have anything to do with your likelihood of filing an insurance claim, but studies have found a link: those with lower credit-based insurance scores are more likely to file a claim.
What’s the end result? In most areas, people who have bad credit pay much more for insurance.
According to Christine Barlow, a chartered property casualty underwriter and managing editor at FC&S Expert Coverage Interpretation, “the insurance companies want to precisely forecast the risk of a [claim] so that everyone’s rates are accurate and fair.” “Logically, people should pay more for insurance if they are more likely to file a claim,” she argues.
Are credit-based insurance scores fair?
Even if your insurance score accurately predicts whether you will submit a claim, utilizing it as a price component has been increasingly contentious, in part due to the disproportionate impact on low-income and minority groups.
“People with bad credit pay a lot more, which makes life a little bit more difficult for poor people,” says Bob Hunter, the Consumer Federation of America’s director of insurance. “Because of the country’s demographics, it’s also more difficult for [many] people of color.”
The COVID-19 pandemic has exacerbated these difficulties, with Black and Hispanic workers seeing higher unemployment rates than white workers.
In an email, Naeem Siddiqi, a senior advisor and credit risk expert at analytics firm SAS, said, “Using credit score for premiums just exacerbates [income] inequity, especially throughout the epidemic when many suffer unemployment or underemployment.”
Some states have put a temporary halt to the practice in order to prevent penalizing those who have had financial difficulties as a result of the outbreak.
Nevada makes it illegal for insurers to deny coverage or raise premiums on or after March 1, 2020, based on credit score changes. A three-year embargo on using credit information to price car, house, and renters insurance was recently introduced by Washington’s insurance commissioner.
See also: See Medicare Supplement Insurance Plans Comparison
How to find cheaper renters insurance
Those with bad credit don’t have to pay exorbitant renter’s insurance premiums or forego coverage altogether. These suggestions can help you save money.
Examine your credit scores. If your premium goes higher, Siddiqi recommends asking the insurance company why. If your credit data contributed to a “adverse action,” such as a higher rate, you must be notified under the Fair Credit Reporting Act. If this occurs, immediately review your credit report and challenge any mistakes you uncover.
Take a look around. Because each insurer has its unique pricing algorithm, requesting estimates from at least three different firms to ensure you’re getting the best value is a good idea. Working with an independent insurance agent who can shop around for you is recommended by Barlow.
Look for bargains. According to Alan Umaly, president of Westwood Insurance Agency, you can save money by consolidating your renters and car insurance policies with the same carrier or by informing your insurer if your property has an alarm system. Other savings might be available if you pay in full up front or set up autopay.
Raising your deductible is a good idea. If you ever submit a claim, your deductible is the amount deducted from your insurance payout. A higher deductible can help you save money on your insurance premiums, but it may not be worth it if you won’t be able to cover the deductible in the event of a claim.
Boost your credit score. Paying your bills on time and minimizing your debt might help you establish credit and qualify for cheaper insurance premiums over time.