The Ins and Outs of Backdating Your Life Insurance

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Life insurance isn’t the most cheerful topic to discuss, and many people avoid the conversation all together, however in the uncertain world in which we life it is a necessity. Amidst the current economic crisis, certain people are having to weigh up whether to cancel their life insurance so as to be able to afford other basic necessities. The fact that people are in this predicament is a challenge and life insurance providers are realising that it’s getting harder to show people the vital role that life insurance cover plays. While there are many ways to lower other bills, many individuals may feel tied to the cost of the life insurance premium, thinking that there is no legitimate way of reducing that expense. Fortunately, there are ways to lower life insurance premiums so that people can still have the cover they need without having to sacrifice other necessities due to the expense. One such way is to backdate life insurance.

So, what is life insurance backdating? And what happens when an insurance policy is backdated? We will find out more about this tactic in the article to follow and discuss the pros and cons of doing so.

What Does Backing Insurance Mean?

When life insurance is backdated, it involves the individual using a previous date instead of the effective date of their application in order to change their insurance age. The truth is that unfortunately, as you grow older the chances of need life insurance increase so the costs of the premium increases as a result. This is why backdating your insurance age could help you save some money on your insurance premiums.

Now this tactic might sound ever so slightly illegal – but it isn’t! Life insurance providers do allow applicants to backdate a new policy they take out to their last half birthday. So while you might not be able to knock years off your age as you wish you could, you can save yourself some money with just that small backdated gap.

What Happens When an Insurance Policy is Backdated?

Remember that your actual age and your insurance age aren’t the same figure. Your insurance age is your half birthday, meaning if you are 28 and 9 months, you can backdate your policy by three months so that you are charged the premiums of a 28 year old, not a 29 year old. It might not sound like a big difference, but it will save you some money on your insurance premiums. 

There are certain eligibility factors that you need to consider if you’re thinking about backdating your life insurance. Your insurance provider will look at your health record, your lifestyle choices, your medical examinations and more in order to ascertain the risks involved in providing insurance cover for your life. The higher risk you appear to be, the more you will have to pay in insurance premiums. However, even if this is the case, you can lower the expense slightly by backdating your life insurance.

What Are the Advantages and Disadvantages of Backdating Your Life Insurance Policy?

While saving yourself some money in this way may sound good on paper, there are some pros and cons to consider of the reality. There are both positives and negatives to backdating your insurance policy that you need to think about before jumping in. Let’s consider a few so that you can weigh up the right course of action for you.

Advantages of Backdating Life Insurance

Here are just a few of the benefits that come from backdating your life insurance.

  • Lower Premium. Lowering your age lowers your risk and as a result lowers your premium, potentially by a significant amount. Even if you think the difference in age is minimal, it may put you in a lower premium bracket which could make a big difference to your bill. 
  • Beneficial In Cases of Seasonal Income. If you don’t have a steady income or your income fluctuates depending on the time of year, it can be a challenge to afford a life insurance. However, if you buy the policy when your income is low, you can backdate the policy to a time of year when your income is at its highest. This means you make payments during the more lucrative time of your working year so you can better afford the premium. 
  • You Are More Likely to Remember Your Payment Dates. With backdating a policy, you can choose to coincide payments with an important date that you will remember. This will help you to be aware of the renewal date. 

Disadvantages of Backdating Life Insurance

On the other hand, here are some of the disadvantages of backdating your life insurance. It’s important to understand these so that you have the full picture of the tactic. 

  • Not Ideal in Cases of Low Income. When you backdate a policy, you need to pay monthly premiums as well as interest rates for the period you have backdated. Despite perhaps saving you money in the long run, this initial expense may not be ideal if you have a tight budget or little spare cash on hand. 
  • Only Beneficial for Older Applicants. If you are a young person, under the age of 25, your insurance rates don’t really tend to vary very much so you’ll likely pay the same even if you do backdate your policy. In these cases, it may not be worth the hassle of changing it. 
  • Won’t Work When Buying Term Policies. Backdating doesn’t bring any benefits for term life insurance, rather it could end up costing you more and you’ll waste the coverage for the time you backdate. If you choose to buy a term policy, it’s not worth backdating the policy, just use the most recent time period. 

To Backdate or Not to Backdate?

Evidently, there are pros and cons to backdating your life insurance policy. You need to weigh up your own personal circumstances, the details of your policy and the pros and cons in order to make the best decision for you, your budget and your future.

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Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned and has not been endorsed by any of these entities. Opinions expressed here are author's alone

The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur.

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