On our Insurance discussion board the other day, I ran across a question that hadn't occurred to me before -- one that I found very interesting.
Gothamgal posted, noting that it's time for her to renew her car insurance policy. Her current policy is with GEICO, a unit of Berkshire Hathaway. She asked:
Since I haven't shopped around in the past three years, I'm tempted to do so. However, I do not want multiple inquiries on my credit report. I don't mind having just one if I subsequently insure with that carrier. Is it possible to get quotes with prospective insurers if I request a quote by either giving them my current FICO score (822 as of yesterday) or, ask them for a quote based on their highest-tier credit scoring? I know these would be only conditional quotes, subject to credit verification. I'm fine with that.
She then added something I'd heard before: "Supposedly, auto and insurance quotes made in a 15-day time span are to be counted only once ." Unfortunately, this isn't the completely satisfactory answer one might hope for: "... but this did not work out for auto quotes obtained by a friend of mine. Apparently, he was told that for the 15-day rule to apply, inquires must be properly 'coded' by the inquirers; apparently not all do so."
So, once this query was posted, there began a customary flurry of helpful responses from denizens of the board and perhaps even passersby. (Note that some denizens are insurance agents and those who work in the industry -- they're people with extra inside knowledge.)
The responses
ziggy29 offered an important distinction to be made when thinking about credit "pulls" that appear on your record: "Shouldn't these credit checks be a 'soft' pull and not a 'hard' pull for your rating, one that doesn't count against you as an application for credit?"
rosewine concurred, explaining: "My understanding is that the checks by insurance companies are soft pulls and shouldn't affect your credit score. That said, I often do quotes with an estimate of credit score with the understanding that the quote may change depending on the result of a credit check, a motor vehicle report and an inspection of the vehicle."
rael4mozo noted upfront that he's "a licensed insurance producer," explaining that, "Most inquiries of this nature are indeed considered a 'soft' hit on your credit and may not even show on the 'inquiries' portion of a FICO based credit report. Many insurance companies are not pulling your FICO score, rather they're pulling a CBIS (Credit Based Insurance Score)." (Read the entire discussion and you'll find a link rael4mozo provides to a Washington Post article on the topic.)
NoIDAtAll, another insurance professional, then offered some examples of how insurance quotes can vary even among top-tier credit scores.
So the consensus was that shopping-around quote queries shouldn't affect your credit score. But then ptheland offered another take, just in case your credit score does take a small hit or two:
I'd say this is what your good score is for. It's kind of like a savings account. You save up some money for a particular purpose. When it comes time to spend that money for its intended purpose, you have no regrets watching the savings account balance go down.
Same thing here. You've done the things necessary to get a high credit score. Now it's time to cash in a few FICO points and get some insurance at a better rate than you could have with a lower score.
Finally, DeltaOne81 suggested a last-resort solution: "I have to wonder ... if you get a hard hit for something that should be soft (i.e., they're not extending you credit), could you dispute it?" This is an excellent point, because much of your credit report is indeed subject to your disputes, and disputing errors can often be worth it. (Read Dayana Yochim's discussion of how to fix boo-boos on your report.)
It's worth shopping around
If you shop around for your car insurance, homeowner insurance and any other insurance products you use, you might end up saving several hundred dollars per year. If you save a total of $500 per year and you invest that amount, it can grow substantially over time. Shares of Merck (NYSE:MRK), for example, have grown at an average annual clip of 14% over the past 20 years. That's enough to turn one $500 investment into nearly $6,300. Home Depot (NYSE:HD) has grown at 26%, on average, during that period, enough to have turned $500 into nearly $50,000.
Keep learning
Learn more about the not-exciting-but-still-critical topic of insurance in our Insurance Center. You may not have thought about some kinds of insurance, such as disability or long-term care insurance, but they're vital for many people. And, of course, properly insuring your property is vital, too. Take a little time to learn more, and you may be very happy you did.
These articles may also be of interest:
- When Your House Burns Down
- 60-Second Guide to Insurance
- Avoid Insurance Sticker Shock
- How to Insure a Bundle
- Disaster-Proof Your Prized Possessions
Home Depot is an Inside Value recommendation, while Merck is a former Income Investor pick.
Longtime Fool contributor Selena Maranjian owns shares of Berkshire Hathaway and Home Depot. The Fool has an ironclad disclosure policy.
