Backdated Life Insurance Premiums

Jodee Redmond
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Understand life insurance policies.

Backdated life insurance premiums are sometimes used to lower premiums on a policy. Since an applicant's age is one of the factors used to calculate costs, it can help a person save on the cost of his or her coverage.

Factors Used to Determine Life Insurance Premiums

When an insurance company receives an application for coverage, it considers several factors when deciding whether to issue a policy and how much to charge in premiums. An individual who applies for a policy when he or she is relatively young will likely pay lower rates than someone who waits until their later years to get coverage.

Along with age, the insurer will look at an individual's health history and current health. Gender also plays a role in how much someone will be charged for life insurance coverage and the company will want to know if the person is -or ever was- a smoker for ratings purposes.

Age for Insurance Policy Purposes

Some insurance companies issue a policy based on the applicant's actual age. The price is calculated based on the individual's age on the date the policy was issued. This is the most straightforward way of doing so.

Age Nearest Birthday

Another way of calculating age for insurance purposes is to use the applicant's nearest birthday. Depending on when the application for coverage was made, the insurance company will assign an age to the applicant.

For example, if a person applies for coverage six months or less after his or her birthday, the insurance company may determine that his or her age is one year less than the applicant's chronological age. In a situation where the same person applies for a policy and will be having a birthday shortly after doing so, the insurance company may consider him or her to be one year older when calculating rates.

About Backdated Life Insurance Premiums

The nearest age calculation is what most insurance companies use when setting rates for coverage. It is possible for them to use backdated life insurance premiums, as well, and this method of calculating age helps the policyholder save money on the cost of his or her coverage. Backdated premiums reduce the applicant's age by one year and that small change can mean significant savings on the cost of life insurance coverage.

Here is an example of how backdating can benefit a person who is looking for coverage:

A person applies for coverage on September 1. His or her birthday is September 15 and the insurance policy is approved and issued on September 30. If the policy is backdated to September 14 (the day before the applicant's birthday), he or she can take advantage of lower rates.

The disadvantage of life insurance premiums that are backdated is that the individual must pay for coverage as of September 14 in this example. The person is paying for coverage that didn't officially start until the policy was issued, which is September 30. In effect, he or she is paying for a couple of weeks worth of premiums and getting no benefit whatsoever.

When shopping around for life insurance coverage, a consumer should ask her agent whether a company offers backdated life insurance premiums to its policyholders. The savings in premiums over the life of the policy need to be calculated before deciding to buy a policy with premiums calculated in this manner.

Backdated Life Insurance Premiums