More on Life Insurance
More on Life Insurance
Backdating a life insurance policy is totally legal — and could save you money.
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During the life insurance application process, your age is one of many factors that insurers take into account to determine how much you pay for your coverage. The older you are, the more you’ll pay. But they won’t always underwrite you on your actual age — after your half birthday, they may consider you one year older because it’s the age you are physically the closest to.
If this happens to you, you’re not doomed to pay higher premiums for the rest of your policy’s term — this is where backdating comes into play. If your half birthday has passed and the insurer considers you older than you actually are, they’ll probably offer you the option to backdate your policy, or choose between two different premium prices: either pay premiums based on the age the insurance company considers you or pay premiums based on your real age, plus any additional months of premiums that account for when the insurer considered you that age.
But backdating isn’t right for everyone. If you’re a younger applicant, you may see so little of a difference in price that you’re better off paying the higher premiums. For others, however, opting in for the lower premiums — and paying for a few extra months — can make a big difference over the life of the policy.
The age you are considered by life insurance companies is called your insurance age
Your insurance age is usually based on your nearest age, and not the age you actually are
If your insurance age is older than your actual age, you may be able to backdate your policy to receive lower premiums
Backdating your policy means you get premiums based on your actual age, but you have to pay additional premiums for the months that your insurance age and actual age don’t match up
Backdating tends to have a negative connotation. Take auto insurance, for example: if you backdate your car insurance policy so that it says you were covered for an accident you had the month before you actually bought the policy, you'll be committing fraud. You do not want to backdate your auto insurance policy.
But for life insurance, backdating isn’t a bad thing and can actually save you hundreds — or even thousands — of dollars. In the realm of life insurance, backdating can be a good thing because by making your policy retroactive by a short period, the insurer isn't taking on any more risk, they’re just collecting premiums on time that has already passed.
So what does that mean, exactly? If you get an offer to backdate your policy, the insurer lists your policy’s effective date, or the date that your life insurance policy became active, as a date in the past so that you can lock in lower premiums because you were younger on that date. If it sounds too good to be true, there is one caveat to be aware of: you have to pay for all the months your policy was technically in force.
Backdating revolves around one key number: your insurance age, which usually isn’t based on your actual age but your nearest physical age — determined by your half birthday. Some insurance companies do honor your actual age as your insurance age, but for the most part, you can expect to be underwritten based on the age you’re physically the closest to.
Here is the breakdown of what those things mean:
Basically, if you apply for life insurance after your half birthday, you can backdate your policy so that its in force date is before your half birthday to take advantage of lower rates that will last for the entire policy term. For example, the day you turn 39, you have six months to apply for life insurance and get your 39-year-old rates. Once you reach your half birthday— that is, when you're 39 years and six months old — the insurance company considers you to be 40, and will set your rates accordingly.
So if you are 39 years old and seven months, you’ll likely have to choose between paying premiums based on your insurance age (40) or backdating your policy to your actual age (39) and paying two months of extra premiums to account for receiving premiums based on the month before your half birthday.
The life insurance application process involves a thorough evaluation of your health, hobbies, and of course, your age, to determine one thing: your risk of dying. Your mortality determines how much you pay for life insurance — the higher your risk of dying at an earlier age, the more you’ll pay.
Because after your half birthday, you are physically closer to your next age, insurance companies associate your mortality with that age too. The bottom line: anything that might affect when a life insurance company projects you’ll die is going to affect how much you pay in premiums.
You can’t just backdate your policy an infinite amount of time to get more affordable premiums — and you probably don’t want to, you could end up paying thousands of dollars to compensate for the time disparity. Life insurance companies will let you backdate a new policy a few days or up to six months.
Backdating essentially revolves around your half birthday. You are able to backdate up until your last half birthday to get lower premiums, but no more.
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Backdating is an opportunity to rewind the clock back to your half birthday when the insurance company still considered you the actual age that you are.
With life insurance, your rates increase as you age. Your rate is set when you sign the policy, and it won’t change during the term of the policy. But, as you age, the cost of purchasing life insurance increases.
When you’re younger, the rate change might be so minimal that you’ll barely see a difference — and there isn’t much reason to backdate your life insurance policy. But as you age, that pricing difference surges. Your rates when you’re 40 are going to be higher than your rates when you’re 39 and backdating your policy could save you a lot of money.
However, if you apply for life insurance before your half birthday, there's no need to backdate your policy, since six months before your insurance company would have already considered your current age.
Take a look at the graph below to get a sense of how much your half birthday could affect your life insurance rates (depending on your age).
Average life insurance premiums for women:
|AGE||$1,000,000 IN COVERAGE|
Average life insurance premiums for men:
|AGE||$1,000,000 IN COVERAGE|
Sample premiums are calculated for non-smokers with a Preferred health rating in Ohio, who qualify for a preferred rate class, obtaining a 20-year, $1 million term life insurance policy. Life insurance averages are based on a composite of policies offered by Policygenius from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica and may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 10/15/2020.
As we noted above, if you’re younger, the pricing discrepancies are so minimal that it might not make sense to backdate your policy. If you’re a 25-year-old female and you’re offered premiums based on your nearest age being 26, backdating your policy only saves you 65 cents per monthly premium. And over the course of a 20-year term, only $156. But if you’re 55 and underwritten as if you’re 56, backdating your policy can save you $17.31 per monthly premium, and $4,154.40 in the long run if you bought a 20-year term policy.
The downside of backdating your insurance policy is that it isn’t free. You'll have to pay the premiums for those weeks or months that are now part of your newly backdated policy. When you're deciding whether it's worth it to backdate or not, there are three questions to consider:
Generally, backdating your life insurance policy isn't as useful for younger applicants because the difference in premiums from year to year isn’t that much. But as you get older and see bigger jumps in your premiums with each birthday, backdating might be the right choice.
A Policygenius agent can answer any questions about backdating that you have.
Backdating your life insurance policy gets you cheaper premiums based on your actual age rather than your nearest physical age or your insurance age. You’ll pay additional premiums upfront to account for the policy’s backdate.
Your policy’s coverage start date will align with the backdate and not the date you physically sign your policy. So if you choose to backdate, your term length might shorten slightly. For example, if you sign and activate a 20-year term policy on October 14, 2020, but your policy is backdated for August 1, 2020, your term length is based on the backdate and your coverage will expire on August 1, 2040.
The age you are physically closest to is your nearest age. If you are 35 and 7 months old, your nearest age is 36. Insurers use this age to determine your premium rate, along with your health history, gender, and hobbies.
Nupur Gambhir is a life insurance editor at Policygenius in New York City. She has researched and written extensively about life insurance since 2019, with specialties in life insurance companies, policy types, and end-of-life planning. Her writing on insurance and finance has appeared on MSN, The Financial Gym, and end-of-life planning service Cake. Previously, she worked in marketing and business development for travel and tech.
Nupur has a B.A. in Economics from Ohio State University.
Rebecca Shoenthal is an insurance editor at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.