Life Insurance Policy Backdating
Life insurance policies are issued at the Insurance Age of the insured. With age being one key factor in determining the premium rate of a policy, it is important to keep the age at policy issue as low as possible. In the absence of a viable time-traveling machine, there is little we can do to reverse the aging process. However, policy backdating is sometimes an option that could keep the Insurance Age of the insured down by one year. And one year often makes a big difference in premium rates.
For the most part, life insurance premiums increase as you get older. So having an insurance age change during underwriting is most likely going to result in a higher final premium when the policy is issued. To prevent this change in premium, a policy may be backdated to save the previous age of the applicant. Here's how it works:
- Example 1 - Without Backdating
Original Quote = $300.00 annually
Action
Date
Age
Application signed and dated July 1
30
Applicant's age changes July 15
31
Application approved as applied July 30
31
Policy issued July 31
31
Premium submitted/policy in force August 15
Final Premium = $325.00 annually
The final premium is now $25.00 higher annually due to the age change. Over the course of a 20-year term policy, this would result in an additional cost of $500.00 to the policy owner.
- Example 2 - With Backdating
Original Quote = $300.00 annually
Action
Date
Age
Application signed and dated July 1
30
Applicant's age changes July 16
31
Application approved as applied July 30
31
Policy backdated and issued July 31
30
Premium submitted/policy in force August 15
Final Premium = $300.000 annually
This policy was backdated with a policy date of July 15, 2006, which is one day prior to the applicant's age change. This resulted in keeping the issue age of the policy at 30 and the premium at the original quote of $300.00 annually.
Backdating this policy would result in a savings of $500.00 over the course of the next 20 years. However, in doing so, the policy owner must pay for coverage for a period of time in which there was no coverage in place (July 15 to August 15). This is the opportunity cost of backdating and in this case the amount is equal to approximately $25.00. There is obviously a positive tradeoff for the policy owner in this case. Backdating the policy to age 30 would result in a net savings of $475.00 over the term of the policy.
Depending on the circumstances, it may not always be best to backdate a policy. QuickQuote's Account Managers and Case Managers work closely together to identify backdating opportunities and present the associated advantages and disadvantages to applicants. Our objective is to help customers decide the best course of action to take for saving money on their life insurance policies.
What is Your Insurance Age?
Life insurance companies use several factors when determining the premium for a policy. These include, but are not limited to, health status, health history, tobacco/nicotine use, gender and age. The last one seems fairly simple to determine. After all, your age is what the calendar says it is. Unfortunately, many life insurance companies see it a different way.
Life insurance companies generally use one of two methods for determining an applicant's insurance age for the purpose of issuing a life insurance policy.
1. Actual Age
The first method of age calculation is called Actual Age (sometimes referred to as Age Last Birthday). This method calculates your insurance age based on your last birthday. Let's look at a couple of examples:
Your Date of Birth May 1, 1950 Today's Date April 30, 2006 Your Insurance Age Today 55
