More on Life Insurance

Q

Q

Why do life insurance companies care about your half birthday?

A

A

Your age impacts where insurers place you on a mortality table. A half birthday may result in a policy offer based on your nearest age as opposed to your actual age, resulting in higher premiums.

Nupur Gambhir

Nupur Gambhir

Published September 24, 2020

KEY TAKEAWAYS

  • Insurers usually offer policies based on your nearest age, which is the age you are physically closer to

  • Backdating your life insurance policy allows you to pay your premiums according to your actual age, even if your nearest age is older

  • If you’re young, the difference between your actual age and nearest age might not make a big difference in the cost of your premiums, but as you age, the pricing difference can be significant

Your loved ones may not care about your half birthday, but your life insurance underwriterdoes! Life insurance companies use your half birthday to determine the age you are closest to during the underwriting process. Once you hit your half birthday, insurers might actually set your premiums as if you are a year older, which could increase the cost of your life insurance policy. While not ideal — life insurance premiums increase as you age — there are steps you can take to keep your policy affordable.

So get out the cake — your half birthday does matter.

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Why do insurers care about your half birthday?

Most decisions made by insurers in offering you a life insurance policy are guided by one main component: where you rank on a mortality table. The riskier you are on a mortality table, the costlier your life insurance premium is going to be. When insurers are evaluating how likely it is that you’ll die, they look at not only your medical history, occupation, and family history, but also your age.

In understanding how life insurance companies evaluate your age in an application, there are a few key distinctions worth knowing:

  • Actual age - your real age
  • Nearest age - the age you are closest to
  • Insurance age - the age insurers classify you as, which is usually based on your nearest age. Although some insurers will identify your insurance age as your actual age.

So where does your half birthday comes in to play? When you hit say, 35 and six months, you’re physically a lot closer to being 36 than you are 35. Life insurance companies consider your nearest age when determining your policy, as opposed to your actual age. In this instance, a life insurance company would underwrite you as if you were 36, even if you’re actually 35. The age you’re underwritten as is called your insurance age and affects how much you’re paying for life insurance.

Why your half birthday matters for life insurance

How does your half birthday affect life insurance premiums?

The impact your half birthday will make on your life insurance premiums depends on…surprise, surprise, your age. Generally, the cost of life insurance increases about 4.5-9% every year that you age — and even more in your elderly years. Although the cost of life insurance increases as you get older, the younger you are, the likelier it is that the price discrepancies are going to be comparable.

Someone who is 25 years old might see rates that are similar to those of someone who is 26 years old. In fact, there’s a chance they might even see the same premiums. But, with every additional year there can be a substantial increase in the premiums you’re paying. The difference between premiums when you’re 55 and 56 is significant, and you could end up spending thousands more on life insurance premiums over the duration of the policy’s term.

Some life insurance companies do offer policies based on your actual age, so it’s important to work with an agent to determine the best policy for you according to your age and other variables.

Check out the graph below to see how the premiums gradually increase with age:
Average life insurance rates for women by age

AGE$1,000,000 IN COVERAGE
25$34.54
26$34.69
35$41.73
36$44.36
45$84.34
46$91.85
55$200.61
56$225.62

Average life insurance rates by men for age

AGE$1,000,000 IN COVERAGE
25$45.13
26$45.25
35$50.85
36$53.87
45$110.69
46$120.75
55$281.25
56$314.23

Methodology: Sample monthly premium rates based on 20-year term life insurance policy for a non-smoker in Preferred health rating; quotes based on policies offered by Policygenius in 2020.

As you can see, if you’re in your 20s or even 30s, the price difference might not be big enough to see a comparable financial impact of getting a premium that reflects your insurance age and not your actual age, but if you’re in your 40’s and 50’s, spending a little extra on premiums can start to add up. For a 10-year policy, a 55-year-old female in good health will spend an extra $3,957.6 alone, and those quotes are assuming perfect health and the best life insurance classification.

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What to do if you’re rated based on your half birthday

If your half birthday occurs during the life insurance application process and the insurer comes back with a policy offer accordingly, you’re not necessarily stuck paying those higher premiums for the duration of your policy’s term. Many life insurance companies offer something called backdating your policy, which is where you pay premiums according to your actual age, but you also pay a few months of extra premiums depending on when your half birthday was. You can always choose to reject a backdating offer and pay the premium based on the older age, which might be a higher amount.

If your life insurance company allows you to backdate your policy, you might see them refer to this as paying premiums based on your save age. Your save age is simply the age that allows you to pay the cheaper policy premium by adjusting the policy’s effective date to the day before your half birthday.

How backdating works

If an insurer allows you to backdate your policy to your save age, then you qualify for your actual age’s rates. The caveat is that to do so, you have to pay the additional premiums as if you got your policy the day before your half birthday. For all intents and purposes, that will technically be the day that your policy begins and you will be billed as such.

Whether or not you pay annually or monthly will affect how these premium payments are made.

If you pay your premiums monthly and your half birthday was two months ago, you’ll need to make up two months of premium payments in order to receive the lower rates for your policy. This amount usually has to be paid upfront — but it can end up saving you thousands of dollars if there’s a big enough price difference in the two age’s premiums.

If you pay your premiums annually and your half birthday was two months ago, backdating your policy means that your policy’s effective date will be two months and one day ago. So if you’re purchasing your policy April 1st, but your half birthday was February 1st, your annual billing date for a backdated policy will be February 1st.

Your save age vs. your real age

If your half birthday occurs during the life insurance application process, should you backdate your policy and pay a few months of additional premiums based on your real age? Or should you accept the premiums based on your insurance age? It all depends on whether or not you’ll end up saving money.

Here’s how much you’d save if you choose to backdate your life insurance on a 20 year-term policy.

Average premium savings for women

AGESAVINGS
25$36
35$631.20
45$1,802.40
55$6,002.40

Average premium savings for men

AGESAVINGS
25$29
35$724.80
45$2,414.40
55$7,915.00

Methodology: Sample monthly premium rates based on 20-year term life insurance policy for a non-smoker in Preferred health rating; quotes based on policies offered by Policygenius in 2020.

As you can see, there is less incentive to backdate your life insurance policy if you are in your 20s. In fact, the savings are so low that you may actually spend more by backdating your policy — and you should probably just accept the incremental increase in the cost of your premiums. But if you’re 35 and your insurance company quotes you based on your nearest age of 36, that can really cost you. In that case, backdating your policy can save you thousands of dollars, making it well worth your time.

If you receive an offer to backdate your policy, you’ll likely get a notification of how much you can expect to save over time. If the cost of backdating your policy is more than what you’d save, then you should accept the premiums based on your insurance age. But if the price disparity is high enough, backdating your policy and paying a few extra months of premiums might be the most cost-efficient option.

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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