Looking at the Benefits of Life Insurance Backdating

In this article...
  • Life insurance backdating costs more money now but reduces your premium payments. Explore the scenarios where this strategy makes sense when buying a policy.

Life insurance backdating lets you benefit from lower monthly premiums, but you'll need to pay more when you enroll. You might want to use this strategy if you are closer to your next birthday than your last birthday because age plays a role in how much you pay for life insurance. It's important to do the math to see if backdating your life insurance makes sense for you.

What Is Life Insurance Backdating?

Life insurance companies typically use your "nearest age" as your "insurance age." If you decide to backdate your life insurance policy, the insurance company will list an effective date in the past. The agent will calculate your premiums based on your age on that date rather than your older nearest age. However, you'll have to pay the premiums for the previous months. You can't backdate your life insurance policy further than your most recent birthday.

What Happens When an Insurance Policy Is Backdated?

Let's look at an example to see how it works. You buy life insurance in February, and you'll turn 55 in March. The insurance provider will backdate your policy to your 54th birthday in March of last year so you'll benefit from lower premiums. However, you'll have to pay the premiums for March through the following February upfront when you get your coverage.

Should I Backdate My Life Insurance Policy?

It might not make sense to backdate your life insurance policy as a younger person because you won't save very much on your monthly premiums in exchange for the larger upfront payment. Older adults can save more on regular premiums with this practice, so it might make more sense to consider backdating if you're closer to 65 than 64, for example.

Every life insurance provider uses different premium calculations, so do the math when you get a quote to decide whether to backdate or not. Find out how much you'll need to pay upfront and how much you'll save on your premiums. Then, you can divide the savings into the upfront payment to see how many months it will take to make backdating worth your initial expense.

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