Financial recovery following a bankruptcy isn't easy, and it takes time. Because of the negative impact bankruptcy can have on your credit score, you may have to pay higher insurance rates. Although some insurance companies consider you a bad risk if you have a poor credit rating, not all companies feel that way. Some use criteria other than credit to assess risk. Others specialize in selling high-risk policies.
Shop Auto Insurers
If your auto insurance company uses your credit rating to set the premium, there's a good chance your rates will go up. But since not all companies base rates on a customer's credit history, look for an insurer that won't pull your credit report. Your age, driving record, where you live, model of car you own and number of miles you drive each year are among the key factors auto insurers consider when setting rates. For some, a low-risk profile in those areas will outweigh the negative impact of the bankruptcy.
Purchase High-Risk Homeowner Insurance
You may have to buy high-risk homeowner insurance if a company won't issue you a policy because of a bankruptcy on your credit report. The cost will still be more expensive than the customary policy, even though high-risk policies often offer less coverage. Still, you can save money on your premium by raising your deductible and paying for small losses out of pocket to limit the number of claims you file. If you live within five miles of a fire station and take simple steps like installing deadbolt locks, smoke alarms and carbon monoxide detectors, you also can lower your insurance costs.
Buy Term Life Insurance
If you already have a life insurance policy when you file for bankruptcy, keep it. If not, consider a term life insurance policy. These policies don't accumulate a cash value, therefore, bankruptcy won't affect them. Treatment of policies that accumulate cash value vary depending on the state in which you live. Although you will have to pay higher premiums, a term life policy for a specified number of years is less expensive than other policy types. Also, because the underwriting guidelines for life insurance companies vary, the more factors you have in your favor, the better your chances for getting insurance.
Rebuild Your Credit
Proving that you've learned how to manage your finances effectively can help gradually improve your insurance options. Although the impact of a bankruptcy lessens with time, take immediate steps to begin rebuilding your credit and removing this as a negative factor when rates are determined. It helps to make payments before the due date and pay more than the minimum payment due. Make certain that creditors report your payments to the major consumer credit-reporting agencies -- Experian, Equifax and TransUnion. You can order your annual free credit report from each to check that the information listed is correct.
- Federal Trade Commission: How Credit Scores Affect the Price of Credit and Insurance
- Bankrate: Insurance Company May Pull Your Credit Report
- Myfico: Credit Report Q&A
- Nolo: Bankruptcy and Your Credit FAQ
- Texas Department of Insurance: Understanding Life Insurance
- Nolo: How Can I Raise My Credit Score After Bankruptcy?
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.