Backdating and Saving Age in Life Insurance

Whether it is for Life insurance, critical illness or disability insurance, life insurance companies will date the insured closest to their next birthday. This is a simply due to the fact that they base your policy off of the exact calendar date that it is effective. With this, there can be some questions surrounding how much money you might save if you apply at the right time. There is also the factor of applying at a late date and losing money too. You must be careful when going through this process, but luckily we will discuss what you need to do in order to not make any mistakes when figuring out what date would be ideal for applying for life insurance.

A Real Life Example

Application Date vs Policy Issue Date

Application Date: This refers to the date on which the insured (or the person applying for insurance coverage) submits the application to the insurance company. The application typically contains information about the insured’s personal details, the type and amount of coverage requested, and other relevant information that helps the insurance company assess the risk and determine the premium.

Policy Issue Date: This is the date on which the insurance company approves and issues the insurance policy to the insured. It signifies the official start date of the insurance coverage. The policy issue date is usually after the application date because the insurance company needs time to review the application, underwrite the risk, and process the policy.

The time between the application date and the policy issue date can vary depending on the complexity of the insurance product, the underwriting process, and any additional information the insurance company might require from the applicant. During this period, the insurance company may conduct background checks, risk assessments, and any necessary investigations to determine the insurability of the applicant and the appropriate terms and conditions for the policy.

This means that even if you are apply 6 months prior to your birthday it is possible that you can get quoted as a year older. The reason being is the application date (date insurance policy is applied for) can be different than the issue date (date the insurance policy is put in force).

Going back to our example with Bill, it is possible that Bill could have applied and been approved on same day through a quick issue insurance policy, however generally speaking once an insurance policy is applied for it can take a few days to upto a few months (depending on underwriting requirements) for policy to be issued. This being said, it is important to apply for life insurance closer to the beginning of the age you are because the process of making a life insurance policy effective can take some time so you do not want to play it close, or just simply wait until your next birthday and do it within a safe time prior to 6 months of your birthday.

Save the Age or Current Date

Going back to our example of Bill, although he may have a policy issued within the 6 month period closest to his next birthday the life insurance company will allow Bill to “save the age” or back date the policy to be 6 months and 1 day prior to his next birthday. What that mean is let’s suppose the life insurance policy Bill applies for on Jan 15, 2022 is approved just a couple days later on Jan 17, 2022. In order to “save the age” and be quoted as a 39 year old Bill would ask his insurance broker to advise the company to issue the policy based on 6 months and 1 day prior to his next birthday (or July 28, 2022). However that would require Bill to pay for premiums effective July 28, 2022 (or approx 6 months of premiums during a time he did not have coverage).

When to Save the Age

Typically it makes sense to “current date” insurance policies, especially where there is several months of back premiums potentially due. A caveat to this rule is when there is a relatively nominal period to back date, for example if Bill was issued a policy Aug 1, 2019 it may make sense to have the insurance company back date a few days to conserve his age.

Another instance it may make sense to save the age would be where long term the numbers justified. Let’s supposed both the life insurance and critical illness insurance policies for Bill were issued Jan 28, 2022 (1 day before his 40th birthday). In order for him to be quoted as a 39 year old he would require policy be issued as of July 28, 2022. Would it make sense for Bill to pay 6 months of premium? This would be dependent on the premium difference between being aged as a 39 year old vs 40 year old and how long the policy was in place.

Let’s suppose on the life insurance policy, Bill chose a level cost universal life insurance policy with premiums due to age 100 for 100K of face amount of coverage.

• Cost as a 39 year old is $82.60/month
• Cost as a 40 year old is $85.28/month
• Back dated premiums due are $82.60 x 6 months = $495.60
• Savings monthly for life is $85.28 – $82.60 = $2.68/month
• Cross over for when savings realized (not considering opportunity cost on back dated premium) is $495.60/$2.68 = 184.93 months or 15.41 years after which it made sense to back date.

At the same time let’s suppose Bill applied for a 10 year term critical illness insurance policy for 25K of face coverage.

• Cost as a 39 year old is $12.38/month
• Cost as a 40 year old is $12.87/month
• Back dated premiums due are $12.38 x 6 months = $74.28
• Savings monthly for 10 year term is $12.87 – $12.38 = $0.49/month
• Cross over for when savings realized (not considering opportunity cost on back dated premium) is $74.28/$0.49 = 151.59 months or 12.63 years (beyond the 10 year term)

In this example it might make sense for Bill to back date or save the age on his life insurance policy, but would definitely make sense to current date his critical illness insurance policy. Every circumstance is different and there are times where long term the numbers might make sense but in practical terms paying for back dated premiums is not a viable solution.

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Thinking of buying life insurance?

We can help you figure out what the best plan for you in when considering the current date or save the age when applying for an insurance policy. At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to ensure the best solution for you and your needs. We provide expert life insurance solutions, including no medical life insurance, critical illness insurance, term life insurance, and permanent life insurance to build the best package to give you the protection you need. 

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, Alberta, and British Columbia, including areas such as Waterdown, Calgary, and Kelowna.