One way to save money on your life insurance is to “save your age” before you sign on the dotted line of your new policy. “Backdating” your policy can save you serious cash on your life insurance.
As most people know, a lot of factors go into calculating individual life insurance rates. One of these factors…is age. Typically, the younger you are, the lower your life insurance premiums will be. But as you get older, rates are higher because, obviously, the risk of death is statistically higher as we age.
So what can do you to get the best rate for your age? You can “backdate” your policy. By “backdating” (up to six months, LEGALLY), you may be able to save a lot of money each year over the time you own your policy. Sometimes even thousands of dollars in savings.
In terms of pricing policies, life insurance companies use different terms to calculate an insured’s age. “Actual Age” is customarily used to describe one’s, well, actual age. So let’s say, you’re 55 years old. You’re going to stay 55…until your 56th birthday. Makes sense, right? (Insurance companies get so technical, don’t they?)
Now, “Attained Age” or “Age Nearest” is insurance jargon used to describe the age that you are closest to. So, using the prior example, if you’re age 55 and seven months, most (but not all) insurance companies would generally treat you as age 56, not 55.
So what does “backdating” a policy mean?
“Backdating” your policy allows you to get the lower premium rate of the age you were last year, instead of the higher rate that the insurance company would like to charge you, based on their way of determining your age.
Example: You turned 55 seven months ago. Most insurance companies will deem you to be age 56. Now, if you want to buy a $500,000, 20-year term policy, your rate will be $1,886 per year. But if you agree to backdate that policy by just one month…so your policy “start” date is one day before your “half-birthday”…you could get the age 55 rate of $1,700 per year. So the first year of your policy will only 11 months in duration, since your next premium will be due one day before your next half-birthday.
Confused? Don’t be. You’re just paying for an extra month of coverage…in exchange for the opportunity to pay a lower annual rate for the entirety of your 20-year term life policy. And the savings over time are not insignificant. The difference in premiums is $186 per year. Multiply that by 20 years…and the savings comes out to $3,720. So, yes, you did technically “waste” 1/12 of your first year’s premium for that “back” month you additionally paid (about $142). But would you rather save $142…or gain $3,720 instead? In this particular case (and these are REAL numbers), it’s a no-brainer.
Does backdating make sense for YOU? Obviously, the numbers will vary in each particular case. The older you are, and the closer you are to your age change date, the more likely it is that backdating will save you a lot of money. The younger you are, and the more months you need to go back to save your age, the less likely backdating will make sense. Every situation is different. But it definitely makes sense to have your agent crunch the numbers both ways before you move forward with purchasing any life insurance policy.
Is backdating my policy legal?
In a word…YES. It’s perfectly okay…and legal…to backdate the “policy date” (up to six months), in order to save your age…and save you money on your premiums. Bottom line: saving money is good, at any age, right? (Don’t you feel younger already?)