Saving money on term life insurance isn’t always easy. Even if you qualify for the best rating class and lowest premiums, there aren’t any discounts, coupons or specials to be had on term life insurance. See our blog post from earlier this month for the reason why.
But there is one way you may be able to save on your coverage. Using a simple policy dating trick known as backdating, you could lower your policy issue age, thus reducing the premiums you pay for your policy. Here’s how it works.
While a few life insurance companies use your actual age to determine the issue age on your policy, most life insurance companies use your ‘six-month birthday.’ Your six-month birthday is simply your date of birth plus six months.
Let’s take a look at an example:
- John’s date of birth is 1/1/1950. Therefore, his six-month birthday is 7/1 of any given year.
- John turned 61 on 1/12011. But once his six-month birthday passes on July 1, most life insurance companies will consider him to be age 62.
Age Nearest Birthday
Another way to think of it is to find the age you are nearest to on any given date. Again, let’s look at our example from above:
- 1/1 John’s 61st birthday
- 7/1 John’s six-month birthday
- 6/1 John is still considered 61 as he is closer to his 61st birthday.
- 8/1 John is now considered 62 as he is closer to his 62nd birthday.
Backdating, or ‘saving age’ in industry speak, means the life insurance company will assign your policy a date that is right before your six-month birthday. In our example, John’s policy would be issued with a policy date of June 30th or prior. This will ‘save his age’ at 61 and keep his premium lower. The alternative would be to issue the policy with a current date (after July 1st), thus resulting in a policy issue age of 62 and higher premiums.
If the life insurance company uses your actual age for the policy age, the company can still backdate the policy by making the policy date before your actual birthday.
The Disadvantage of Backdating
The primary disadvantage of backdating is you must pay for the policy starting from your policy date. If your policy date is backdated three months, you will have to pay for those three months even if you were not considered covered under the policy during that time. Also, if you choose to backdate your policy, the term length you selected (e.g. 10-yr, 15-yr, etc.) will start from your backdated policy date as well.
The Advantage of Backdating
Backdating can save you a considerable amount of money over the life of your term life insurance policy. Make sure you calculate just how much money you will save, or ask your agent to calculate it for you.
One last time, using our example:
- John’s date of birth is 1/1/1950.
- He was approved at a Preferred Best rating class for a $100,000 policy with a 10-year term.
- If the policy is issued with a current policy date of age 62, he will pay a premium of $406.00 per year.
- If the policy is backdated to 6/28/2011 (a few days before his six month birthday), he will pay $358.00 per year for the same policy.
The difference of $48.00 annually adds up to $480.00 over the life of his policy. Even though John’s backdated policy requires him to pay premiums from the policy date of 6/28/2011, the savings make it worthwhile to backdate the policy.
Most life insurance companies will allow backdating up to six months. You may need to sign a statement acknowledging the process of backdating when your policy is issued. Some companies will automatically backdate to save age if only a very short time has gone by since your actual birthday or six-month birthday.
Check with Your Agent
Backdating may not always save you money, and may not even be necessary depending on your date of birth, six-month birthday and the policy issue date. Make sure to ask your agent if it makes sense in the long run for you to backdate your policy.