Deciding whether to backdate your life insurance policy will depend on your individual situation.
What happens when an insurance policy is backdated? If you’re young, the price difference between a backdated policy and one for your current age may be small enough that backdating won’t make much of a difference financially. With older applicants, the change in the year-to-year price could be significant enough that backdating (and paying extra premiums upfront) will end up saving more money in the long run.
It is important to note that the age that life insurance companies use to set your rates (referred to as your insurance age) is usually based on your nearest age, and not the age you actually are. Meaning that once you pass your half birthday your age will be rounded up.
You can only backdate as far as your last half birthday, and you’ll have to pay for each month between when your backdated policy begins and the month in which you actually bought it.
What is backdating insurance?
Backdating an insurance policy is when you set the day your coverage became active to a date in the past. In other types of insurance, it’s impossible (or considered fraud) to backdate your policy. But in life insurance, backdating your policy is an option insurers offer to save you money.
Backdating insurance can lock you in at a lower premium. There is one caveat: You have to pay for all the months between your backdated policy date and the current month.
How does backdating insurance work?
Backdating revolves around your insurance age, which usually isn’t your actual age but your nearest physical age — determined by your half birthday.
Here’s what those things mean:
Actual age: Your real age
Nearest age: The age you are physically closest to
Insurance age: The age at which the insurance company classifies you, usually your nearest age
If you apply for life insurance after your half birthday, you can backdate your policy so that its effective date is before your half birthday to get 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’re 39 years and six months old, the insurance company considers you to be 40 and sets your rates accordingly.
So if you’re 39 years old and seven months, you’ll have to choose between paying life insurance 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.
Why do life insurance companies care about your half birthday?
Life insurers set your premiums based on how likely you are to pass away while your policy is active. Because life expectancy goes down as you get older, your premiums go up as you age.
How your half birthday affects your life insurance rates
Generally, the cost of life insurance increases about 4.5% to 9% every year that you age — and even more in your older years. But when you’re younger, the price discrepancies are smaller.
A 25-year-old who’s given an insurance age of 26 might see a difference of a few cents between the two premiums. A 55-year-old with an insurance age of 56, however, could pay almost $20 more every month. Over the life of a 20-year policy, that could be a $4,800 difference.
How far back can you backdate a life insurance policy?
Life insurance companies let you backdate a new policy up until your last half birthday to get lower premiums, but no more.
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When it makes sense to backdate your life insurance policy
It makes sense to backdate your life insurance policy if your savings from backdating are greater than what you'd spend on paying some extra premiums upfront.
As noted above, the cost of purchasing life insurance increases as you age, but once you sign the policy, your rate won’t change during the policy term.
The chart below shows how much your half birthday could affect your life insurance rates (depending on your age).
As discussed earlier, the pricing discrepancies for younger people are so minimal that it might not make sense to backdate your policy.
If you’re a 35-year-old female and you’re offered premiums based on your nearest age being 36, backdating your policy saves you $3.00 per month ($720.00 over a 20-year policy). But if you’re 55 and underwritten as if you’re 56, backdating your policy can save you $21.92 per month and $5,260.80 over the course of a 20-year term policy.
When do you pay the extra premiums for backdating?
How and when you pay for the months between your backdated policy date and your approval date depends on whether you pay premiums monthly or annually.
Here’s what happens when an insurance policy is backdated if you pay your premiums:
Monthly: You’ll pay your extra premiums when you pay for your first month of coverage. If your policy is backdated two months, you’ll pay three months of premiums for your first payment.
Annually: Your extra premiums are part of your next annual payment. You’ll be charged on your policy’s adjusted date instead of when you were approved. For a policy approved in June and backdated to April, you’ll be charged next April.
How to decide if backdating is right for you
When you’re deciding whether it's worth it to backdate or not, there are three questions to consider:
How much will you save on your premiums annually or monthly?
How much additional premium will you have to pay upfront?
How long will it take you to break even on the extra premium?
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.
Frequently asked questions
What happens when an insurance policy is backdated?
Backdating your life insurance policy gets you cheaper premiums based on your actual age rather than your insurance age. You’ll pay additional premiums upfront to account for the policy’s backdate.
How many months can a life insurance policy be backdated?
Most life insurance companies allow you to backdate your policy a maximum of six months or up to your last half birthday, whichever is the shortest amount of time.
Does backdating insurance affect the term length?
Your policy’s coverage start date will align with the backdate, not the date when you physically sign your policy. For example, if you sign and activate a 20-year term policy on October 14, 2023, but your policy is backdated for August 1, 2023, your term length is based on the backdate and your coverage will expire on August 1, 2043.