What is Backdating?
Backdating is a life insurance option that allows you to get coverage based on your actual age, not what insurers call your age nearest birthday, in exchange for some extra premium payments. It works by setting the policy’s effective date in the past. Backdating can help you save on overall costs, in some cases.
Why backdating matters
When you apply for life insurance, your age plays a major role. The older you are, the more you’ll pay for your policy.
In fact, insurers care so much about your age that many use a different metric here. Rather than considering your actual age, which they call your age last birthday, they might consider you a year older. Once your half birthday passes, they’ll age you up if they use a measure called age nearest birthday. The thinking here goes that if you’re closer to your next birthday than your last one, you’re closer to that age — and that’s the age insurers should apply.
When you’re younger, this usually doesn’t matter much. But as you get older, each year you age can mean a relatively significant increase in premiums. If you’re considered a year older because of your age nearest birthday, you may want to consider backdating.
How backdating works
In life insurance, backdating allows you to use your actual age, rather than your age nearest birthday, for your life insurance policy. When you choose backdating, your life insurance company sets the policy’s effective date in the past.
Rather than putting that effective date on the actual date your policy goes into force, backdating moves the date back enough to move you down an age in the age nearest birthday measure. For some people — specifically older people — this can make your premiums notably more affordable.
Insurer’s don’t offer backdating for free, though. When you backdate a policy, you’re responsible for paying all of the premiums that you would have paid from that date. If you backdate your policy by three months, for example, be ready to pay those three months of premiums.
While that can mean some upfront costs, if backdating your policy drops your premiums by a significant enough margin, it can save you money in the long run. Crunch the numbers to determine if backdating is right for you.
One quick note here: backdating is legal in life insurance. Be advised, though, that this isn’t necessarily true for other types of insurance. You can’t backdate your home insurance policy to cover an incident that occurred when you didn’t have insurance in place, for example.