What Happens When a Life Insurance Policy is Backdated?

Although life insurance is often considered a valuable asset, many individuals are mostly concerned with a policy’s cost. One of the best ways to mitigate this expense is to shop around between different companies so that you can be sure you’re getting the right coverage at the best price. 

One possible way to save money, though, is by backdating your life insurance policy. This tactic is limited and may not work in every situation, but it could reduce your total cost by hundreds. Here is what you need to know. 

Life Insurance and Age: A Primer

Before we can dive into the process of backdating, it is vital to understand how life insurance companies determine your policy premiums. Typically, these factors will come into play, regardless of the kind of policy you purchase: 

  • Age
  • Health
  • Gender
  • Lifestyle
  • Smoking Habits
  • Medical and Family History

If you are planning on buying term life insurance, your age will be one of the most critical influences on your rates. Simply put, the older you are, the more you’ll pay every month. Even a difference of one year can have a significant impact, particularly if you buy a long-term policy. 

For example, a male non-smoker aged 35 could pay roughly $42 per month for a $1 million policy. At 36, he will spend about a dollar more. If the same individual waited until he was in his 40s, the discrepancy would be about $4, and in his 50s, it could be roughly $20 or more. 

This is where backdating can come in handy. 

Life Insurance Backdating and Half Birthdays

Technically speaking, once you reach a certain age, you are that age until your next birthday. For example, once you turn 35, you stay 35 until you turn 36. When talking about life insurance, however, that is not the case. Instead, underwriters will consider your half birthday when determining your age and rates. 

So, let’s say that you turned 35 on January 1st. June 1st would be your half birthday. Although you are still considered 35 until next year, an insurance company will mark you down as 36 as early as June 2nd. 

The reason companies do this is because you are now closer to your next birthday than your previous one. Since life insurance underwriting is all about assessing risk factors, companies will scrutinize the details, no matter how minor they may seem. 

As we established, a difference of one year could have an impact on your monthly rates. Based on the examples we provided above, here are some examples of the price difference for a 25-year policy at different ages: 

  • Age 35: $42/month
  • Total Policy Cost: $12,600 for 25 years
  • Age 36: $43/month
  • Total Policy Cost: $12,900
  • Age 45: $86/month
  • Total Policy Cost: $25,800 for 25 years
  • Age 46: $90/month
  • Total Policy Cost: $27,000
  • Age 55: $206/month
  • Total Policy Cost: $61,800 for 25 years
  • Age 56: $223/month
  • Total Policy Cost: $66,900

Even on the low end of the spectrum, he could save $300 over the life of his policy by getting insurance at 35. 

So, where does backdating come in? Well, backdating is the process of setting your policy date at some point in the past. So, if you have crossed your half-birthday threshold, you could potentially put the start date of your insurance to before that day, so you are considered one year younger. 

Let’s say that your half-birthday falls on June 1st, and you try to get a policy on August 1st. According to the insurance company, you are technically one year older, so your rates will be adjusted accordingly; however, if you backdate the policy by three months to start on May 1st, your premiums will be set at the lower rate. 

While this process sounds good on the surface, there is a catch. When backdating your policy, you have to pay for the months that your coverage was technically in force. So, if you backdated for three months, you will owe those premiums immediately. 

Because of how this process works, it may not be ideal for everyone. For example, if you are in your 20s, the difference between monthly rates may be negligible, so there is no tangible benefit to backdating.

Another reason to avoid backdating is if the upfront cost will be too high for you to afford. As we saw in our table rates above, buying insurance at age 50 or higher can be expensive. 

So, if you have to pay four or five months of backdated premiums, it could be quite costly. Even though you will likely save more in the long run (depending on the length of your policy term), the price tag may be too expensive to pursue. 

Overall, before you decide to backdate or not, we recommend calculating your total savings and upfront costs. If you will save more money than you’ll spend, it is likely worth backdating. Otherwise, don’t worry about it. 

FAQs About Backdating

Although this process is relatively simple, there are some additional factors to consider. Here are some frequently asked questions about backdating. 

How far back can I set my policy? 

As a rule, insurance companies will only allow you to backdate until your last half birthday. So, don’t try to get 25-year-old rates when you turn 30. 

Also, keep in mind that you have to pay all backdated premiums, so the further back you go, the higher your upfront cost. 

Can I backdate other types of insurance?

The only other coverage you can backdate is health insurance, and the same rules apply. Backdating auto insurance is illegal since it could lead to fraud. For example, if you backdated your coverage after getting into a collision. 

Can I backdate permanent life insurance?

Yes, many insurance companies allow individuals to backdate any kind of policy, including universal and whole life insurance. However, because these plans are often much higher than term policies, the upfront cost may be prohibitive. 

Why do life insurance companies offer backdating?

Unlike other forms of coverage, life insurance benefits only pay out when you die. So, there is no additional risk to backdating since the company knows that it won’t have to pay any claims for those months. 

So, this process is an easy way for the insurer to get more money upfront and for the consumer to save money over the long term. 

Contact NextGen Life Insurance Today

Now that you know about backdating, you can plan your life insurance search accordingly. However, this is only one element to consider when choosing a policy. At NextGen Life Insurance, we’ll help you compare plans and rates to find the best option for you and your family. Call us today to get started.