Backdating Life Insurance- A Complete Guide:

People buy life insurance to provide for their loved ones in their absence. Your loved ones can use it for the burial costs, children's education, and living expenses for the dependents. Some companies in the US offer cash values and accelerated benefits. You may also back-date life insurance to make it effective from a date before you signed the policy with the company.

What is Back-dating Life Insurance?

It is a process by which you use a previous date to the effective date of application to alter the age. Life insurance policyholders may opt for this provision because the lesser the age, the lower the premium. To determine the risk companies consider your younger age.

How Many Months May It Be Backdated?

In any case, it may not be more than six months. Choose this option when you want to pay a lower premium to save some cash. The insurance providers allow backdating to your last half birthday. When you are 42, try this, and you can conveniently go back to 41 to pay a lesser premium.

Your insurer may update your life insurance policy to indicate that you are paying the premium again. This implies that your cover started six months ago. You should decide whether back-dating will be beneficial. Speak to the insurance company because every company may have a different rule before making a decision.

Never go for backdating if you are in your 20s or 30s, as the premium doesn't change rapidly year after year. Make a comparative study of your term and whole life insurance rate to consider backdating the effective date. Your age determines the risk, while the underwriter underwrites your risk. If you are past your birthday, you can opt for backdating to allow the underwriter to use your actual age for premium calculation.

What is Involved When a Policy is Backdated?

You may wonder what is involved when a life insurance policy is backdated. When you backdate your policy, remember that your actual age and the insurance age differ. For example, you are 59 years and 11 months old. The company issues a policy considering your age as 60. The company will not round off your age when you backdate your policy. Instead, the company will consider you 59 years, and allow you to pay a lesser premium.

For backdating, you have to submit your health record, undergo health checkups, and disclose your lifestyle. This will help the company correctly judge the risk associated before issuing a policy. You may end up paying a higher premium if the company decides that covering your life involves more risk. Most insurance companies in the US take risk factors very seriously before issuing life or health insurance policies.

Pros and Cons Of Backdating Your Policy:

Backdating life insurance is an important financial decision having financial implications.

The pros are:

• Lower Your Premium:

When the risk associated with the policyholder increases, the premium also increases. The insurer considers your age and health to assess the extent of risk he undertakes to cover. If you reduce your age by one year, you automatically fall into the lower premium bracket and pay a lesser premium.

• Pay Premium During High Seasons: 

If you don't have a steady income and cannot afford premiums during the off-season, backdating life insurance benefits you. You can pay the premium when you have enough income. It gives relief for some time.

For example, Mac Donald is a farmer and has taken the policy during the off-season. It may be difficult to pay a premium when he can't sell in the local market. Mac Donald may talk to the insurer to backdate his insurance policy pay during harvest time. He may sell his harvest in the local market and pay the premium conveniently.

• Help You Remember Your Premium Dates: 

When the underwriter underwrites the policy, you can request him to backdate it to coincide with your birthday. It may help you remember your premium payment date.

The Cons are:

•  Not Advantageous When You Earn Low:

If you earn low, don't consider backdating as it may require you to pay a higher premium. The interest rates for the backdated period would be a burden. You may not have spare cash to spend on extra premiums.

• Not Needed When You Are Young: 

Premiums will be the same for 20 and 21. So if you are 21 and try to backdate, you won't benefit anyway. Don't go for backdating if you are under 25 as the premiums won't vary.

• Not Suited To Term Policies:

When you backdate a policy the coverage starts from the period from which it is backdated. In such a case, you waste the cover for backdated time. For term policies, stick to updated time.

Summing Up: 

When a life insurance policyholder uses a previous date instead of the effective date of application, it is called backdating the policy. You can backdate to a maximum of six months. If you are in your 20s or 30s, don't go for this process as the premium you pay will not change significantly with backdating.