January 17th, 2012 | Author: Mitch Reynolds

Backdating Insurance Policies to Save Age

Backdating your age can save you lots of money over your life insurance

Backdating to save age on life and health insurance. When buying life or health insurance one of the major factors in determining the cost is your age, and backdating you are can save you money. What is backdating age for insurance policies? I’m glad you asked, because that is the subject of this article.

What is Backdating Age?

Backdating age on an insurance policy is a way you can retain your age as a year younger than you actually are. Most life insurance companies use the age nearest calculation to determine your age for insurance purposes. This means when are within 6 months of your actual birthday you have already crossed the line to being a year older and that is the premium you will be charged. For instance, if your birthday is 3 months away, and you are turning 40, the insurance company will give you a premium as if you are already 40.

You can backdate your age to remain 39 on your insurance application (as per the example above). Let’s call the day 6 months before your actual birthday your insurance birthday. This is the day you become a year older in the eyes of the insurance company. If you make an application for life insurance within 3 months of your insurance birthday you can backdate your age to remain one year younger.

How does backdating work?

When you request to backdate your age, the insurance company will issue your policy one day before your insurance birthday. This will allow them to backdate your age so you pay a premium as a person one year younger. The issue date of the policy is the first day premiums are due, so when backdating the policy you will have to pay monthly premiums from the day before your insurance birthday.

Let’s look at an example:

Say your actual birthday in on July 1, so your insurance birthday will be on January 1. If you wanted to save age, you will have to have a policy issued on December 31. Let’s say you applied for life insurance on January 15 and it took the insurance company until the end of February to finish underwriting you. The policy will be issued as of December 31, meaning monthly premiums for Dec 31 – Jan 30 and Jan 31 – Feb 27 would be due immediately when the policy is settled (delivered to you). Another premium will be due immediately for Feb 28 – Mar 30.

You might think this unfair to have to back pay two months premium immediately and then start paying premiums monthly going forward, but that is how backdating to save age works. You must pay premiums from the backdated dated of issue of your policy in order to retain your younger age.

Can backdating your age really save you money?

YES! It can. We will look at two simple examples, both for the 40 year old person backdating to save age as 39 (the older you are the more money you will save by backdating your policy). In both examples we will use the worst case scenario – where the person must pay 3 months back premiums in order to save age. This is the highest cost you would pay when backdating your age, and once this immediate cost is sunk into your policy you would then enjoy lower premiums for the rest of your life (or for the term number of years on a term life insurance policy).

Term 20 Scenario

In this scenario we will compare premiums for a 40 year old man and a 39 year old man (non-smoker, standard rates) for $500,000 of life insurance coverage on a Term 20 life policy (level premium for 20 years before the policy renews and premiums increase). Let’s assume the policy will be cancelled after 20 years if nothing has happened, so we will analyze just the 20 years of premium.

Monthly cost for a 40 year old man – $55.04 per month (RBC Insurance Term 20). Total cost over 20 years = $13,209.60.
Monthly cost for a 39 year old man – $51.35 per month (RBC Insurance Term 20). Total cost over 20 years = $12,324.00. Add three months premium for backdating, and the total cost is $12,478.05.
SAVINGS = $731.55

As of now, RBC Insurance is showing the lowest premium in Canada for $500,000 for both a 40 and 39 year old man. Term insurance is lower cost than permanent insurance, and it seems like just a few dollars per month, but the small amounts add up to almost $1,000 over 20 years.

20-Pay Whole Life Scenario

In this Scenario our same man is buying $250,000 of whole life insurance with a guaranteed 20-pay premium plan. He knows that after 20 years the policy will be completely paid for and no further premiums will be due and he will own $250,000 of life insurance plus have a cash value inside the policy (cash value not analyzed in this article). Here is how backdating his age will save him money.

Monthly cost for a 40 year old man – $237.83 (Empire Life 20 Pay Solution Series). Total cost over 20 years = $57,079.20.
Monthly cost for a 39 year old man – $228.15 (Empire Life 20 Pay Solution Series). Total cost over 20 years = $54,756.00. Add three months premium for backdating, and the total cost is $55,440.45.
SAVINGS = $1,638.75

In this scenario by backdating age the man can own exactly the same amount of life insurance for $1,638.75 less in total premium. Not bad. He has to back pay three months premium, costing him $684.45 immediately when the contract is delivered, but the future savings are worth it.

Life Guard Insurance can show you many ways to save money on your insurance policies

Backdating to save age is just one of the many ways to save money on your life and health insurance policies. Please contact us to find out more about getting the best insurance risk protection at the lowest possible price in Canada. We have advisors across the country ready to help you save money on your life insurance.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about a backdating age on insurance to save money would also be very much appreciated.