Bankruptcy consequences likely to include higher insurance rates.

One of the consequences of filing bankruptcy may be the affect it has on the rates that the debtor is charged for home, car and life insurance.

The main link between insurance rates and filing a petition in U.S. Bankruptcy Court is the individual's credit score, which invariably is driven down once a bankruptcy action is recorded by credit reporting agencies.

A peson's credit rating and the accompanying credit score are a predictor of risk for lenders or others who provide a financial service such as insurance.

Normally, those who provide car insurance look at an individual's driving record and how long they have been driving, just as a company that offers home insurance considers the age, size and condition of a home before agreeing to a policy.

When bankruptcy enters the picture, the credit score becomes an important factor as well.

"The biggest difference is that insurance risk scores look for stability, but credit risk scores look for a reliable pattern," Craig Watts, a spokesperson for Fair, Isaac and Company (FIC) told Insure.com. FIC provides insurance risk scores that are used by about 300 insurers nationwide.

Different factors are given different weight when being considered by insurers, according to Watts. How much debt a person carries, for instance, counts for 30 percent of the risk score. Payment history counts for 35 percent of the score, while length of credit history is 15 percent, new credit is 10 percent and types of credit held is 10 percent.

"Insurance scores are also more interested in how regularly you pay than in how much you already owe," Watts told the website.

All of these issues come into play when a person has filed bankruptcy, which is likely to result in higher insurance rates when a policy comes up for renewal or when an individual is trying to find a new insurer.

Under these circumstances, individuals looking for affordable coverage should compare rates of different insurers and consider lowering their deductible amounts to offset higher rates on a policy.

According to MyInsurancePlace.com, an individual who goes through a bankruptcy may also have difficulty getting a life insurance policy or may be offered one with less coverage. "This is because you now carry a higher risk of lapsing the policy early," the website states. "It means that insurers are worried you will have to stop paying and cancel the insurance policy in the early years of coverage."

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